Thailand plans to regulate the sale of baht-denominated bonds by foreign entities to shield local investors, a move that risks driving away borrowers from Laos and Myanmar.
Under a new set of rules proposed by the Securities and Exchange Commission, overseas sellers of baht bonds will be required to have their new securities rated by international credit rating companies for both private and public offerings. They will also require the approval from the commission starting from Jan 1.
The Ministry of Finance currently issues approval to foreign issuers and there is no obligation for them to obtain ratings from global companies.
The requirement of a minimum investment grade credit rating will help protect investors from risky overseas issuers, said Pornanong Budsaratragoon, the commission’s secretary general.
Thailand has promoted itself as the region’s financial centre for governments and companies in neighbouring countries to raise capital for their economic development. The policy has enabled the government of Laos and its state-owned power utility to emerge as key issuers of baht-denominated bonds in recent years to finance infrastructure projects such as dams.
The rating requirement may lessen the appeal of Thailand as a fund-raising source for the governments and companies in neighbouring countries, especially Laos, said Adisorn Singhsacha, chief executive officer of Twin Pine Group, a Bangkok-based financial adviser.
Most of the issuers don’t have credit ratings that would qualify for selling bonds to Thai investors, he said.
Laos has a sovereign credit rating of Caa3 by Moody’s Investors Service, about nine notches below the lowest investment grade, according to data compiled by Bloomberg. Twin Pine has advised the Laos finance ministry and EDL-Generation on sales of baht-denominated bonds.
The finance ministry in Laos has about 28 billion baht in outstanding bonds, while EDL-Generation Plc, the state-controlled power utility, has about 22 billion baht in baht-denominated debt securities, according to data compiled by Bloomberg.
Other foreign issuers of baht-denominated bonds in the past include Singapore-listed Yoma Strategic Holdings with operations in Myanmar, Maybank of Malaysia, and the Export–Import Bank of Korea.
Outstanding baht bonds of foreign firms will probably be exempted from new credit rating requirements to avoid repayment difficulties, according to the SEC statement. The regulator will set up a commission to consider approvals for any proposed new bond sales to roll over their maturing debt. The agency is seeking public feedback on the new rules until Dec 20.
Foreign entities raised about 7 billion baht via sales of baht-bonds in the first nine months of this year, compared with 15.9 billion in 2022, according to SEC data.