Authorities to put lid on B/E defaults

The Thai Bond Market Association (TBMA) and the Securities and Exchange Commission (SEC) are trying to find out the value of non-rated bills of exchange (B/Es) held by high-net-worth investors in efforts to stem continued defaults of the short-term debt instrument.

Neither the SEC or the TBMA have any data on non-rated B/Es offered to high-networth investors or the value of defaults as current regulations do not require these debt instruments be registered with the TBMA, said Ariya Tiranaprakit, TBMA’s executive vice-president.

She, however, estimated that non-rated B/Es account for half of the total B/Es or around 200 billion baht.

Nation Multimedia Group Plc (NMG) emerged as the first non-rated B/E issuer which failed to redeem the debt instrument on the due date last October after its board of directors failed to reach quorum, as the SEC had previously banned eight of its members. But the SET-listed publisher of The Nation and Krungthep Thurakit daily newspapers, which also operates two digital TV channels through subsidiaries — Nation Broadcasting Co runs Nation TV and Bangkok Business Broadcasting Co manages Now 26 TV — later paid off the debt.

Shortly after NMG’s unrated B/E default, other listed companies — KC Property Plc, Inter Far East Energy Corporation Plc, E For L Aim Plc (EFORL) and Rich Asia Corporation Plc — also failed to redeem their nonrated B/Es, triggering fears that the flurry of defaults would snowball into a crisis.

The latest non-rated B/E defaulter is Wuttisak Clinic. The beauty clinic chain, which is a subsidiary of SET-listed EFORL, missed a payment to redeem two series of B/Es amounting to 250 million baht the week before last.

The series of defaulters have prompted the SEC to tighten regulations governing non-rated and non-investment-grade bonds by limiting each intermediary, including asset management companies, to holding one-third of each issue and barring them from being the issuer’s major creditor.

Ms Ariya said the B/E defaulters are small companies and the number of new issuers have declined as investors’ risk appetite for the debt instrument is decreasing.

But large companies and those which have been B/E issuers continue to sell the instrument as there is demand for B/Es being offered by issuers with good payment track records, she said.

In another development, Ms Ariya said capital flight has been detected in the Thai bond market this month after the US Federal Reserve signalled more interest rate hikes are around the corner. This year there have been net fund inflows worth 40 billion baht to the Thai bond market.

Meanwhile, Sarat Chatsuwan, an executive vice-president of Tisco Asset Management, said investors should shy away from long-term bonds because of the risk of interest rate hikes, while short-term bonds are still investable. Equity is expected to offer higher returns this year and Asia countries are projected to contribute to the biggest returns as their economic growth is higher than other areas, he said.