The Bank of Thailand is monitoring the rollover of corporate bonds in the second half after more defaults occurred in the first half, dampening bond market sentiment.
Even though no more corporate bonds are scheduled to mature in the second half of 2023, the central bank said it needs to monitor rollover, particularly in the high-yield segment.
Investors are more cautious about debenture investment following the increase in company defaults in the first half, according to the Bank of Thailand's financial stability report for the second quarter.
In the first half of 2023, three companies reported bond defaults, accounting for 0.3% of the total corporate bonds outstanding.
The corporate bond defaults tallied 0.2% of the value of total bonds outstanding in 2021 from 12 companies, and 0.1% of value last year from three companies, according to the report.
Local companies receiving negative outlooks or rating actions increased 5.5 times on average from January to April this year, compared with 3.5 times during January to October last year, noted the report.
Unsubscribed corporate bonds increased to 0.6% of total corporate bond issuance in May from full subscription in April and 0.2% in March.
However, investors' concerns about bond defaults was restricted, meaning the yield spread of investment-grade corporate bonds was steady in the second quarter compared with the first quarter, said the central bank.
"Despite the corporate bond market remaining resilient, the central bank needs to monitor the ability of local companies to raise fresh funds through the bond market," noted the report.
More corporate issuers are receiving negative outlooks or rating actions than in previous periods because of internal factors specific to each enterprise, according to a previous central bank statement.
Investors are likely to be more cautious on high-yield bond investment, especially non-rated bonds, said the bank.
This development should not affect credit bonds for both issuers and investors as the country's overall bond market remains stable, said Thiti Tantikulanan, head of capital markets at Kasikornbank.
He said the bank's corporate clients, who are scheduled to issue credit bonds in the second half of this year, have maintained their plans.
Wut Thanittiraporn, senior executive vice-president of CIMB Thai Bank (CIMBT), said the central bank's monitoring of corporate bond rollover would not impact investment-grade debentures. However, it may affect high-yield bonds because of the high risk of default, he said.
"In the role of both bond underwriter and seller, the bank has no policy to offer non-rated bonds based on our strong risk management policy. Apart from helping customers to contain risk, reputation is another key concern for the banking business," said Mr Wut.
As a result of rising interest rates, corporate customers face higher financial costs for fund mobilisation through both loan and bond markets. However, the majority of them can weather the situation based on their solid financial status and knowledge, he said.
CIMBT allows customers to raise funds at reasonable prices in line with the market, which helps to minimise financial costs, Mr Wut said.