Corporate bond issuance may exceed the industry's target this year as companies rush to issue them in the first half to avoid stricter regulations imposed by the Securities and Exchange Commission (SEC), says the Thai Bond Market Association (TBMA).
New issuance of long-term corporate bonds could total 690-720 billion baht this year after a series of bill of exchange (B/E) defaults in 2016 prompted the SEC to tighten regulations on B/E issuance, said TBMA chairman Pisit Leeahtam.
Long-term corporate bond issuance this year is projected to be comprised of those issued by financial institutions under the Basel III regulatory framework, valued at 30 billion baht; new corporate bonds worth 420 billion; and refinanced bonds worth 270 billion, Mr Pisit said.
This excludes long-term bonds issued to finance new investment projects and merger and acquisition deals, he said.
With the tougher regulations, B/E issuance is expected to migrate into short-term bond issuance. Companies with good credit ratings may, therefore, opt to issue long-term bonds instead, Mr Pisit said.
The key amendment for B/E issuance that the SEC plans to announce and put into effect by April would limit private placement to a maximum of 10 high-net-worth and institutional investors.
For short-term bonds, intermediaries would be required to screen bond quality before any offerings to investors, with disclosure of key financial gauges such as debt-to-equity ratio.
Both B/E and bond issuers would have to devise contingency plans for funding sources in case they are unable to roll over a debt instrument when the maturity date is reached, a rule aimed at preventing defaults in bonds and B/Es.
At present, there are only two B/E defaults that have not been resolved. These are the cases of B/E issuance by Energy Earth Plc and Inter Far East Energy Corporation Plc.
A significant change in last year's debt securities issuance was that more companies with good credit ratings were issuing long-term bonds. The rate of companies accredited with AA- to AAA ratings and BBB- to BBB+ ratings issuing bonds increased by 18% and 23%, respectively, said TBMA president Tada Phutthitada.
The number of non-investment-grade issuers declined by 33%, he said.
Long-term bond issuance placed for public offerings rose by 52%, while the wholesale distributional channel, including private placement to 10 investors as well as institutional and high-net-worth investors, fell by 5% for each category.