Asset managers weigh bond rescue fund
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Asset managers weigh bond rescue fund

High-yield maturities reeling from pandemic

Asset management firms could possibly set up a fund to help issuers of non-investment-grade corporate bonds battered by the coronavirus pandemic, says a senior capital market executive.

The Securities and Exchange Commission (SEC) reportedly wants to set up a fund to help issuers of non-investment-grade corporate bonds reeling from the virus fallout.

The securities watchdog asked the Finance Ministry to offer tax privileges to make the fund viable. Funding must be sought from several sources, said Deputy Prime Minister Somkid Jatusripitak.

The SEC will call a meeting today with related organisations about the possibility of setting up a non-investment-grade bond fund to prevent bond defaults and stabilise the domestic capital market.

Further discussions about viable options must be held with market participants, said Jomkwan Kongsakul, assistant secretary-general at the SEC.

"Whether the fund is successfully set up or not will depend on market demand," Ms Jomkwan said. "We will have to assess from the meeting's outcome."

Some 33.5 billion baht worth of high-yield bonds issued by 70 companies will mature this year, according to the Thai Bond Market Association.

High-yield bonds are defined as non-rated bonds or those with lower credit ratings than investment-grade corporate bonds.

Of the 70 companies, about half 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), which was set up to provide financing for high-quality firms with bonds maturing during 2020-21.

The BSF is part of the government's third phase of relief measures. The fund is limited to investment of up to 3% of the entire facility in each corporate bond issuer, not exceeding 10% for each sector.

Financial authorities describe the fund as a pre-emptive move to prevent the pandemic from affecting financial stability.

"The Bank of Thailand cannot support [setting up of a non-investment-grade bond fund], because it is against the central bank's principles," said a bond market source speaking on condition of anonymity. "Demand and supply will dictate whether asset management companies can set up such a fund. In any case, the fund's value is not expected to be substantial, since investors still lack confidence in corporate bond investment."

The net asset value of mutual funds managed by local asset management firms saw a decline of 824.6 billion baht in the first quarter, with TMBAM Eastspring registering the biggest loss at 272.3 billion baht, according to data from the Association of Investment Management Companies.

Four fixed-income funds managed by TMBAM Eastspring ceased all transactions and operations in March amid heavy redemption that nearly sparked a liquidity crunch for Thailand's mutual fund industry, with panic selling fanned by the coronavirus outbreak.

The move sent a shock wave through investors and reached a fever pitch when a sell-off was seen in fixed-income funds of other companies as well.

The wildfire was quenched when financial authorities held a press conference on March 22, with the Bank of Thailand announcing a special facility to provide liquidity for mutual funds through commercial banks.

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