Issuance of non-rated and non-investment-grade long-term debentures rose substantially in the first quarter, signalling increased risk-taking behaviour by bond investors, says the Thai Bond Market Association (TBMA).
New issuance of long-term corporate bonds in the first quarter totalled 279.78 billion baht, up 24% year-on-year, according to the TBMA. Of the amount, 255.44 billion was issued by companies operating in the real sector.
TBMA president Tada Phutthitada said the value of long-term corporate bond issuance increased in all ratings groups.
Classified by rating and year-on-year growth, non-rated bonds showed the highest growth of 184% year-on-year to 29.3 billion baht from the 10.3 billion logged in last year's first quarter.
Issuance of non-investment-grade bonds, classified as those rated below BB+, came second, up 95% year-on-year to 2.2 billion baht from 1.12 billion.
Issuance of the highest investment-grade bonds, rated AAA to AA-, grew by a mere 10% year-on-year to 61.6 billion baht from 56 billion.
"Surprisingly, non-rated bonds grew to nearly 30 billion baht," Mr Tada said.
Although half the non-rated bonds are secured by issuing parent companies and the other half have guaranteed collateral such as lands and factories, it could take time to force bond issuers to hand over collateral assets in the event of a default because there could be objections, he said.
"We want to remind investors that investment [in non-rated bonds] has risks," Mr Tada said.
Corporate bonds invested in by institutional and high-net-worth (HNW) investors rose by 69% year-on-year in the first quarter, the TBMA said. Corporate bonds distributed through public offerings (POs) rose by 120% year-on-year.
But the value of debentures raised through POs, worth 45.2 billion baht, paled next to the combined 188.2 billion invested by institutional and HNW investors.
"It should be questioned why high-quality and high-rated bonds were placed marginally for the public," said TBMA senior executive vice-president Ariya Tiranaprakit. "[The reasons could include] obstacles in the fundraising process or higher incurred cost."
The more complex disclosure process of a PO is aimed at protecting investors, Ms Ariya said.
"The HNW distribution may be easier because HNW investors are rich individuals," she said. "But this doesn't mean they won't be in trouble when problems arise."