The Finance Ministry and the Securities and Exchange Commission (SEC) are amending regulations to make it easier for Thai firms’ subsidiaries and joint ventures that invest abroad to issue baht-denominated debentures. The move is aimed at pushing the local bond market to become a funding hub in the region.
Tada Phutthitada says how the regulations will be amended is still unclear.
Ariya Tiranaprakit, executive vice-president of the Thai Bond Market Association (TBMA), said several Thai companies have broadened their business into neighbouring countries and some of their projects are capital-intensive, such as renewable energy and hydroelectric power plants.
Most local firms used project financing or borrowed from financial institutions to fund their greenfield projects abroad, which typically requires a lot of investment money in the early stages, but such funding often carries high financial costs.
Foreign companies and those with operations overseas are allowed to mobilise funds through baht-denominated debenture offerings, but the debt instrument must be rated at least A- to safeguard investors against default risk.
However, the requirement is preventing Thai companies’ units overseas from raising funds via the Thai primary bond market.
“Thai firms should have options to raise low-cost funds such as issuing corporate bonds and registering them at the TBMA.
Corporate bond issuance typically carries an interest rate 2-3% below borrowing from financial institutions,” said Tada Phutthitada, president of the TBMA.
How the regulations will be amended to facilitate these companies is still unclear, he said.
The Finance Ministry and SEC could allow overseas units and joint ventures of local firms to issue baht-denominated debentures without a credit rating, but they must be offered to particular groups of investors if that is the case, said Mr Tada.
Some overseas joint ventures, including Nam Theun 2 Power Co, the operator of a 1,070-megawatt hydropower plant in Laos, are seeking to refinance their debt to cut financial costs. Electricity Generating owns a 35% stake in Nam Theun 2 Power, and other shareholders are EDF International at 40% and Laos Holding State Enterprise at 25%.
Some operators of renewable energy are interested in allocating baht-denominated debentures to fund their investment in the early stages, but cannot meet the required credit rating as they have not had income track records yet.
Pisit Leeahtam, chairman of the TBMA, said the bond market regulator has decided to push the Thai BMA as a regional funding hub in the future so it needs to ease some regulations to facilitate the plan.
The TBMA also plans to coordinate more with other bond markets in Asean for long-term development.
For the local market, the TBMA is committed to helping issuers and investors find easier access to the secondary bond market.
He said only 111 of over 500 SET-listed firms have issued debentures and registered them with the TBMA, so the association plans to encourage them to raise more funds via debentures to improve their balance sheet and strengthen the country’s economic fundamentals over the long term.
“Thai BMA is conducting a market survey on the opinions of stakeholders including issuers, investors, dealers and others in developing market efficiency and increasing its competitiveness in the long term,” said Mr Pisit.
In the meantime, SEC secretary-general Vorapol Socatiyanurak said the Capital Market Supervisory Board approved the revision of rules on filing for equity offerings by Thai companies and other Asean members under the framework of the Asean Capital Markets Forum (ACMF).
Under the revised rules, issuers will be allowed to file the same filing with stock regulators in any Asean country.
The filing must be prepared in Thai and English with identical information certified by all directors. An executive summary must be distributed to investors together with a subscription form.
The ACMF framework refers to multi-jurisdictional equities offerings in Asean signatories to the memorandum of understanding to establish cross-border offerings. Malaysia, Singapore and Thailand are expected to sign the memo by the third quarter this year.