Bills of exchange (B/E) issuance continues to drop this year as companies have shifted to rely on other debt instruments after a series of B/E defaults occurred late last year, says the Thai Bond Market Association (TBMA).
"More companies have changed their debentures to long-term bonds recently," said TBMA president Tada Phutthitada.
For the first nine months this year, issuance of short-dated B/E, excluding those issued by the financial sector, amounted to 397 billion baht, down 14% year-on-year from 462 billion, said Mr Tada.
But issuance of long-term debentures from January to September, excluding those issued by the financial sector, reached 421 billion baht, up 9.9% year-on-year from 383 billion.
The amount of bond defaults, including cross-default cases, reached 14.8 billion baht at the end of September, according to TBMA data.
Cross-default is a provision in bond or loan agreements that puts borrowers in default if they default on other obligations.
But debt instrument defaults accounted for only 0.46% of 3.2 trillion baht worth of outstanding corporate bonds, much lower than banks' non-performing loans of 2.95% in the second quarter, he said.
Mr Tada said the tighter Securities and Exchange Commission (SEC) regulation on B/E issuance, which goes into effect by mid-2018, is expected to help reduce the issuance of this debt instrument.
Under the new regulation, B/E placement will be limited to only 10 investors and there can be no more than 10 B/E. If any of these 10 investors is a high net worth investor, intermediaries are required to inform investors regarding the details of the product.
He said the SEC will also encourage companies to issue short-term debentures through the Medium Term Note Programme, which is expected to be effective next year.
The programme will help simplify the process of issuance by allowing companies to issue short-term bonds any number of times during a two-year period not exceeding a particular amount. Most of the required documents only need to be filed once with the SEC.
In a related development, a hike in the US Federal Reserve's feds fund rate and its balance sheet normalisation are expected to cause some capital outflows in the coming periods, but the effect is projected to be minimal as domestic demand for bonds remains high.
"Both events would raise Thailand's long-term bond yields somewhat, but for short-dated bonds they should remain low as demand remains high," said Mr Tada.
He encourages both the government and the private sector to take advantage of the low interest rate environment by issuing more bonds before interest rates start rising.
Outstanding bonds for this year's first nine months reached 11.37 trillion baht, up 3.13% from 11.02 trillion registered at the end of last year, said TBMA executive vice-president Ariya Tiranaprakij.
Foreign holding of Thai bonds totalled 814 billion baht at the end of September, with 83% of them identified as long-term government holders.
Year-to-date offshore fund inflows into Thailand's bond market amounted to 203 billion baht, with inflows into long-dated bonds valued at 185 billion and inflows into short-term debt worth 17.9 billion, said Ms Ariya.
