As Stark Corporation is projected to potentially default on the payment of bonds worth nearly 9.2 billion baht, the Securities and Exchange Commission (SEC) has released guidelines for investors to track damages.
The SEC recommends investors study the investment information because investing in debt securities is high-risk, and investors could lose both the principal and interest.
The advice clarifies the roles and functions of bond representatives in maintaining investors' rights and interests in the event of default.
Tayakorn Jitrakuldhacha, director of the SEC bond department, said a major risk for bond investment is a default, where the issuer is unable to pay the principal or interest as scheduled. In some cases, the issuer is unable to pay the debt due immediately (a call default).
What should investors do if a bond issuer defaults?
When there is a default on a payment, bondholders have representatives for each generation of holders. Their role is to demand payment of mandatory collateral and claims for damages to bondholders. They also provide various information to investors.
In the case of Stark, the wire and cable manufacturer, the bondholders' meeting on May 31 called for immediately due, or a call default, of two debenture series worth 2.24 billion baht. The resolution means it is highly unlikely that Stark will be able to pay three other bond series with a total outstanding value of roughly 6.96 billion baht.
Kasikornbank is the bond representative of four bond series, with the rest having Asia Plus Securities as the representative.
The bondholders' representative may need to hold a bondholders' meeting to seek approval for various actions, such as requesting an extension of the repayment period, or suing for compulsory payment or collateral.
Bondholders need to monitor news from bondholder representatives and should attend bondholder meetings to protect their interests, said the regulator.
Investors should study the meeting documents thoroughly and ask questions of the bond issuer at meetings, said the SEC. Investors should analyse the information before making a decision, voting to protect their rights and interests.
Bondholders can view the representative's information from the fact sheet section of the instrument's characteristics, or the cover page of the information offering for sale of bonds (the filing). It is available via the SEC "Bond Check" application or the SEC website: https://market.sec.or.th/public/idisc/th/Product/Filing.
When a bond issuer faces a forced payment, how should investors prepare?
When a bondholders' meeting passes a resolution or bondholder representatives use discretion to decide to enforce debt repayment, a bondholder's representative assists in the litigation to enforce collateral payment (in the case of secured bonds), or compulsory debt repayment on behalf of all bondholders.
The representative is responsible for the issuer paying off all outstanding debt as soon as possible.
Bondholders should prepare documents for proof of bond ownership.
If necessary, confirmation of bondholder status is required.
What are the differences between secured and unsecured bonds?
A secured bondholder has the right to claim debt repayment from the assets used as collateral. There will be a process to sell off collateral, such as an auction.
For unsecured bondholders, this group has rights equivalent to general creditors of the company. There is a process to sue for debt repayment.
This group of bondholders has the right to claim other assets that are free from the company's obligations. The assets must be divided with other creditors according to the rights and proportion of the debt between secured bonds or general bonds. The bondholder representative acts on behalf of the bondholder.
How does each type of bondholder receive repayment?
Bond investors are creditors of the company. They have the right to receive payment before ordinary shareholders, while business owners have the final right to receive payment.
For secured bondholders, they have the right to receive repayment before unsubordinated bonds and unsecured bonds. Investors can check the repayment order of the debentures they hold from the debentures' fact sheet.
How can investors monitor the progress of collateral enforcement or debt repayment?
Bondholders can monitor the progress of debt repayment from the bondholder representative, who provides various information to investors.
Although investing in bonds is less risky than stocks, there are liquidity risks and price risks.
The SEC urges bond investors to study all provided information to understand the risks and returns, and allocate funds appropriately for their risk appetite.