Thai, Singapore debenture defaults tip of the iceberg

Thai, Singapore debenture defaults tip of the iceberg

Regulators well positioned to respond quickly, but investors advised to do their due diligence

A series of debenture defaults in two of Southeast Asia's largest capital markets has yet to fan fears of a meltdown, but what is unfolding may be just the tip of the iceberg of financial irregularities.

The value from a series of debenture defaults in Singapore could climb to more than S$100 billion (2.24 trillion baht) this year and over S$10 billion next year — breaking a record of four consecutive debenture defaults between 2015 and 2018, according to a report by the Thai Bond Market Association (TBMA).

For Thailand, although there was no default of domestically issued debentures since 2018 until a recent default by PP Prime Plc (PPPM) worth 580 million baht, more than 3,000 creditors have been unable to use legal methods to claim their principal since the court rejected the class-action case because of lawyers' inexperience and the novelty of the case in the country, said TBMA senior executive vice-president Ariya Tiranaprakit.

These investors, most of whom are high net worth individuals, previously invested in debentures and bills of exchange issued by Inter Far East Energy Corporation Plc (IFEC) and Energy Earth Plc.

Eight companies defaulted on debenture payments worth a combined 14.9 billion baht between 2016 and 2017. That represented 0.39% of total outstanding debentures worth 3.8 trillion baht.

"The regulations on corporate bond issuance have become much better such as requiring bondholders' representatives and conducting investment criteria suitability," Ms Ariya said. "It would be better if the regulator can help tighten enforcement when a bond-issuing company receives a notice from an auditor, the company's management is involved with conflicts or corporate governance becomes an issue the public cannot condone."

The regulator's faster enforcement process will alert debenture issuers about the importance of corporate governance and prevent issuers raising funds from debenture issuance with a corrupt agenda, she said.

Between 2016 and 2017, debentures issued by five companies defaulted on payment, including IFEC debentures worth over 6 billion baht (550 million has already been repaid, with around 5.5 billion left to be paid); Energy Earth debentures worth over 7 billion; KC Property Plc debentures worth 350 million; debentures of E For L Aim Plc and its subsidiary worth over 200 million; and Rich Asia Corporation Plc debentures worth 1.35 billion.

IFEC has never arranged a meeting for holders of debentures since the default started in 2016, while Energy Earth's debenture holders have joined forces and managed to contact the Securities and Exchange Commission, the TBMA and the Department of Special Investigation to file a court case.


TBMA president Tada Phutthitada said the default value of PPPM contributed 0.03% of outstanding value of corporate bonds at the end of the first half.

"It should not be a domino effect on other corporate bonds because it is a minor contribution. In addition, there are only around 700 individual investors who invest in corporate bonds, with an average not exceeding 1 million baht," Mr Tada said.

PPPM, a maker and distributor of aquatic animal feed, has defaulted on debentures worth 580 million baht, with the possibility of a cross-default worth more than 1 billion in total. The two series of debentures are specified as unsecured corporate bonds with a maturity date this year.

The company also may be liable for payment on three other tranches of debentures worth 541.6 million baht, bringing total debenture payment to 1.12 billion, an amount equivalent to almost 35% of PPPM's total assets.

While debentures come with the usual investment risks, they could be prevented if investors thoroughly observe financial information and monitor developments of companies they are investing in.

From a funding perspective, growth of corporate bonds is among the main pillars helping companies to secure funding and diversify financing sources.

Thailand's bond market was worth the equivalent of 81% of GDP at the end of the second quarter, while contributions to GDP from bank loans and stock market capitalisation made up 93% and 107%, respectively.


According to a TBMA article about debenture default in Singapore published on July 24, debenture defaults saw a sharp increase in 2017 to reach a historical high in the country worth a combined S$2 billion.

Nine companies were liable for such default, which included interest payment and principal. Some of them extended the maturity date, some engaged in debt restructuring, others filed for bankruptcy.

A series of debenture defaults came from businesses that used oil as a core manufacturing component.

In April, fears and panic among market participants were fuelled by a default in the interest payment of Hyflux, a global sustainable solutions company listed on the Singapore Exchange, worth S$500 million, where debenture holders were tallied to exceed 34,000. According to Hyflux, the company's corporate bonds in the form of medium term notes total S$265 million. S$100 million notes were due in 2018 and S$165 million were due this year..

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