Brokers who are debenture underwriters will be asked to lend liquidity support to high-yield bond issuers with a combined value of more than 30 billion set to mature this year, to safeguard against rollover and default risks, says a bond market source who requested anonymity.
Some 33.5 billion baht worth of high-yield bonds issued by 70 companies will mature this year starting from May, according to the Thai Bond Market Association.
High-yield bonds are defined as non-rated or having lower credit ratings than investment-grade corporate bonds.
Of the 70 companies, around 50% are debenture issuers operating in the property sector with a maturity value of 16.6 billion baht. The rest are companies operating in construction, tourism and leasing.
High-yield bonds do not receive support from the Bank of Thailand's 400-billion-baht Corporate Bond Stabilisation Fund (BSF) that provides financing for high-quality firms with bonds maturing during 2020-21.
The fund is a pre-emptive move to prevent the pandemic from affecting financial stability.
Although high-yield bonds make up a small portion of the debenture market, this type of corporate bond will face liquidity risks similar to investment-grade debentures, with a probability of having more risks for default than their investment-grade counterparts, said the source.
"No one can predict what kind of impact to the bond market sentiment would transpire if these high-yield bonds cannot rollover or default because the market remains volatile and sensitive," the source said.
The outstanding total on the Thai corporate bond market amounted to 3.6 trillion baht in February, accounting for more than 20% of GDP, according to the Bank of Thailand.
The TBMA and the Securities and Exchange Commission (SEC), as the bond market supervisors, will ask debenture underwriters to provide partial funding for high-yield bond issuers, but details for this initiative remain in progress.
Most underwriters of high-yield bonds and non-rated bonds are, however, securities companies that have little amount capital to lend relative to brokers who are subsidiaries of banks.
Small-sized brokers may be able to support issuers who are small and medium-sized enterprises, while large debenture issuers would have to seek banks' support for rollover loans, said the source.
The SEC, meanwhile, has relaxed regulations for bond issuers since early this year such as the extension period for interest rate and principal payment.
More than 95% of corporate bonds are identified as investment-grade debentures, with 59% of investors labelled as financial institutions, commercial banks, insurance companies and mutual funds. About 5% of corporate bonds are non-investment grade and high-yield bonds offering high investment returns, but are prone to higher investment risks.