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Thai regulator to bar sale of junk bonds to small investors in proposed rule changes

October 10, 2019

Thailand’s securities regulator is proposing changes to regulations governing debt securities, including prohibiting the sale of unrated and junk bonds to retail investors and requiring more frequent publication of financial reports, in a move to bolster investor protection and develop the market.

According to the Securities Exchange and Commission Thailand (SEC Thailand), the country’s debt securities market has “grown significantly and its landscape has also changed dramatically from the past”.

“There are still some deficiencies in the ecosystem,” it says in a statement on October 8.

The regulator is seeking industry feedback for the planned changes, which aim “to bridge the gap and raise standards in certain areas to enhance investor protection mechanism and foster debt securities market development that can facilitate growth of the economy”.

Among other things, it’s proposing that unrated bonds and non-investment-grade debt should only be offered to institutional investors and to the issuer’s directors and executives.

These bonds can currently be sold to retail investors through limited private placement, and issuers are not required to disclose offering information.

The regulator says most individual investors are older, suggesting that it’s concerned these investors may not be savvy enough to know what they’re investing in.

SEC Thailand is also proposing that bonds offered in a medium-term note scheme should be of investment grade because subsequent issuances under the programme require only minimal scrutiny. Medium-term notes are bonds maturing in five to ten years.

The regulator also wants bond issuers to file financial reports sooner and more frequently, in order to provide investors with the most recent information.

Issuers are currently required to publish reports within 90 days of the end of each accounting period.

According to a bond manager at a Malaysian fund management company, the planned changes can help improve institutional investors’ demand for Thai corporate bonds.

Based on his firm’s internal research data, he says about one-third of Thai corporate bondholders were individual investors as of the first six month of 2019, compared with 18% held by insurance companies, 13% by mutual funds, and 12% by pension and provident funds.

“Clearly, the individual investors need added protection, given the significant role they contribute to the overall bond market. Over time, this [the proposed changes] can also help boost institutional investors’ confidence in the bond market,” the Kuala Lumpur-based bond manager tells Asia Asset Management (AAM), speaking on condition of anonymity.

SEC Thailand is also proposing that product factsheets in bond offerings and financial reports should be more precise and fit into a single page because “readers do not want to read a ten-page document”.

And it wants registration statements and prospectuses to emphasise information that is material or specific to issuers and the securities offered, especially the issuer’s capital structure and financial situation.

SEC Thailand did not provide a deadline for the industry to provide feedback or say when it plans to officially amend the rules. Spokespersons for the regulator did not immediately respond to questions from AAM.