Bond defaults reach B14.2bn

The amount of bond defaults reached 14.2 billion baht during the first six months of the year if cross-default cases are included, says the head of the Thai Bond Market Association (TBMA).

But president Tada Phutthitada said the debt instrument defaults are still minimal when compared with banks’ non-performing loans (NPLs).

Cross default is a provision in bond or loan agreements that puts borrowers in default if they default on other obligations.

Four issuers — KC Property Plc (KC), Rich Asia Corporation Plc (RICH), Inter Far East Energy Corporation Plc (IFEC) and Energy Earth Plc (EARTH) — failed to redeem shortterm corporate bonds and bills of exchange (B/Es) worth 3.75 billion baht in the three months to June, while overdue debt instruments remain unpaid, Mr Tada said.

The defaulted debt instruments represented a mere 0.12% of the outstanding corporate bonds at 3.2 trillion baht, or 0.48% if cross-default debt papers are included — far below commercial banks’ bad loan ratio of 2.94% of total loans.

After the defaults of those four companies in the second quarter, investor appetite for bonds or B/Es rated non- or below-investment grade have whittled down over debt default fears, while the issuers of such debt instruments have then had to seek bank loans instead, Mr Tada said.

Issuance of new short-term bonds excluding those issued by the financial sector fell 7% year-on-year, while issue of below-investment-grade bonds plunged in the first half.

In another development, Mr Tada said the TBMA expects new corporate bond issuance to reach 600 billion baht this year after 440 billion was issued during the first half.

The outstanding bonds for the first half reached 11.3 trillion baht, up 2.9% from the end of last year.

Corporate bonds worth 440 billion baht were issued by 134 companies in the first quarter. Some 123 billion baht of that was from long-dated notes — up 39% year-on-year.

The property sector was the top shortterm bond issuer for the first half, but the offering amount fell by 4% year-on-year.

Mr Tada said the top 40 property developers have an average debt-to-equity ratio of 0.3, while their total assets exceed liabilities, indicating that their financial position remains healthy.

Offshore fund inflows to the bond market for the first half amounted to 95.6 billion baht, with inflows to long-dated bonds of 125 billion and outflows from short-term debt worth 29 billion.

Foreign holdings of Thai bonds totalled 723 billion baht at the end of June.