Corporate bonds see surge

Corporate bonds issued in the first half rose almost 25% to 311 billion baht from 250 billion baht in the same period last year, driven by small and medium-sized enterprises (SMEs) experiencing difficulties getting loans from commercial banks.

In the first six months of the year, out of the total 98 corporate bond issuers 22 issued bonds for the first time, said Thai Bond Market Association executive vicepresident Ariya Tiranaprakit.

“The number of bond issuers increased significantly to 98 from 83 in the first half of last year. The number of new bond issuers also rose to 22 firms from 14 in the same period last year,” said Mrs Ariya.

Since the Securities and Exchange Commission two years ago allowed corporate bond offerings to high-net-worth investors without a credit rating requirement, the number of corporate bonds issued has gradually increased.

Previously, all firms issuing debt instruments required a credit rating in a bid to protect investors.

“Around 80% of bonds issued in the first half were unrated,” said Mrs Ariya.

This year, however, the number of new issues has jumped significantly as issuers have to raise funds through other equities and debt instruments since banks have tightened their lending amid with the slowing economy.

“Most SMEs are unable to access financial institutions especially during the economic slowdown, with banks reluctant to extend loans due to fears over their debtrepayment capability. To secure their liquidity in the short term, even though the financial costs of bonds and bills of exchange (B/E) are far higher than bank loans, they must take them,” said Mrs Ariya.

In addition, the process of issuing bonds takes a shorter time than banks’ loan approval.

“Some companies have seen that it is worth issuing the expensive instrument as they raise funds to increase production capacity temporarily to serve the high season,” said Mrs Ariya.

On the contrary, only large companies issued bonds in the first half of the year, including the Bank of Ayudhya and Siam Cement Group.

Another factor supporting the growth in bond issuing this year is the greater role of securities companies which are keen to underwrite unrated bonds.