Issuance of bills of exchange (B/E) and unrated short-term bonds have declined since the Securities and Exchange Commission (SEC) revised the debt instrument issuing regulations to enhance investor protection.
Issuance of B/E and non-rated short-term bonds declined to 267 billion baht in this year's first half, equivalent to 6.6% of total outstanding value in the domestic bond market, because of lower investment confidence in these debt securities, said the SEC.
In 2017, issuance of B/E and non-rated short-term bonds was valued at 300 billion baht, representing 7.8% of total outstanding value in the domestic bond market.
SEC secretary-general Rapee Sucharitakul said the regulator revised bond-issuing regulations to enhance investor protection, especially for high net worth investors because this group was most affected by a series of B/E defaults.
Despite the amended bond-issuing regulations, the amount of issuance continued to rise to 4 trillion baht from 3.5 trillion logged in 2016.
The SEC ordered bond-selling agents and market intermediaries such as asset management companies, securities firms and banks to screen investment products before distribution to clients, said Mr Rapee. The regulator also demanded bond issuers appoint bondholder representatives to look after investor rights, he said.
"The market responded well after the new measures became effective, with debt instruments having greater quality and B/E [default] issues declining, including a reduction in short-term bonds offered for private placement 10, which were issued in the past with dubious objectives," said Mr Rapee.
Under the new regulation, B/E placement is 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 of the product details.
A series of bond defaults by listed and non-listed companies that issued B/E and short-term bonds in 2017 resulted in financial damage to thousands of bondholders.
B/E and unrated short-term bonds were favoured by small companies to raise funds two years ago. In 2016, issuance of the two was worth 393 billion baht or 10.4% of total outstanding value in the domestic bond market.
B/E defaults began in December 2016 and continued through 2017. Damages were around 16 billion baht, representing 0.4% of total outstanding value of the Thai bond market.
For the mutual fund industry, the SEC found the number of high-yield or high-risk bonds has decreased along with lower issuance of fixed-income funds offered to non-retail investors, said Mr Rapee. Non-investment grade and unrated mutual funds also fell from 18.7 billion baht as of June to 104 billion in 2016.
