The Thai Bond Market Association (ThaiBMA) and the Securities and Exchange Commission (SEC) have discussed measures to protect investors from damage caused by bond investment, demanding bond issuers disclose financial terms in detail and increasing penalties for breaking the rules.
Ariya Tiranaprakit, executive vice-president of ThaiBMA, said the measures "upgrade bond governance" and are expected to take effect later this year, starting with high-yield bonds, which have higher risk of default.
"In the past, some companies were unable to pay principal and interest on time, and issuers often requested postponing the payments to avoid bond default, claiming they didn't have enough liquidity to repay the debt," she said.
"We do not want bond issuers to use this as an excuse because it will undermine investor confidence in the bond market in the long run. Furthermore, postponing payment periods indefinitely causes damage to investors."
The new rules and conditions will require bond issuers to elaborate on the company's financial conditions as well as the use of funds raised from bond issuance, clearly stating how they will allocate liquidity to repay debt, said Ms Ariya.
She said the SEC agrees with this approach.
The current penalties for bond defaults may be too light, said Ms Ariya.
"Even if fraud is charged, the penalty does not carry a jail term. The trial process usually takes a long time and civil fines are minimal. People are not afraid of the penalties and there can be repeat offences," she said.
"We could increase the penalty. In the future, if there is a violation or failure to comply with the conditions, the penalty could be heavier and the investigation process should be completed faster than before."
In related news, this year's corporate bond issuance is expected to be in line with the target of 1 trillion baht.
Some companies may wait for a clearer picture of the domestic interest rate direction after the Monetary Policy Committee (MPC) holds its next meeting on Aug 21, said Ms Ariya.
"Both the US Federal Reserve and Thailand's MPC could cut interest rates this year, and private companies are waiting for an opportunity to raise funds," she said.
"If interest rates are cut, more bonds are expected to be issued as companies can predict the costs."
Large companies have issued bonds as scheduled with high credit ratings because it helps attract investors, said Ms Ariya. High-yield bonds receive less interest during market volatility, she said.
"Bond defaults can happen during an economic slowdown, but bond issuers often request a debt repayment deferral. Deferrals can help companies manage their liquidity, but some companies intentionally use the money inappropriately," said Ms Ariya.
"These companies intend to cheat investors and we need stricter measures to protect investors."