The Securities and Exchange Commission (SEC) and capital market representatives have agreed to set up a high-yield bond fund to provide liquidity for non-investment-grade debenture issuers battered by the coronavirus crisis.
The fund initially will be established in the form of a mutual fund or a trust fund and classified as a closed-end fund managed by financial experts.
Investment is restricted to institutional investors and high-net-worth investors, with mechanisms in place to protect investors’ benefits and risk acceptance level.
The main purpose of setting up a high-yield bond fund is to support issuers of non-investment-grade debentures harmed by the outbreak, generate liquidity and enable continuity of business operations in the form of bridge financing.
The fund will concentrate on investment in high-yield bonds and will relax some rules to provide flexibility in establishing and managing funds.
Further discussions will be held with relevant agencies on incentives, such as tax benefits and related fees.
“Every agency that participated in the meeting understands the current situation and sees the necessity of establishing a high-yield bond fund,” said SEC secretary-general Ruenvadee Suwanmongkol. “The SEC is ready to propose the matter to the Capital Market Supervisory Board in order to relax rules that could act as limitations and propose a budget to support the analysis of debt instruments. The SEC emphasises risk management of the fund through professionals and pays attention to good governance.”
The money used to set up the fund will come from interested parties, Ms Ruenvadee said.
Earlier reports said the SEC wanted to set up a fund to help issuers of non-investment-grade corporate bonds reeling from the virus fallout.
The securities watchdog asked the Finance Ministry to offer tax privileges to make the fund viable. Funding would be sought from several sources, said Deputy Prime Minister Somkid Jatusripitak.
Some 33.5 billion baht worth of high-yield bonds issued by 70 companies will mature this year, according to the Thai Bond Market Association.
High-yield bonds are defined as non-rated bonds or those with lower credit ratings than investment-grade bonds.
Of the 70 companies, about half are debenture issuers operating in the property sector with a maturity value of 16.6 billion baht. The rest are companies operating in construction, tourism and leasing.
High-yield bonds do not receive support from the Bank of Thailand’s 400-billion-baht Corporate Bond Stabilisation Fund, which was set up to provide financing for high-quality firms with bonds maturing during 2020-21.
Stock Exchange of Thailand president Pakorn Peetathawatchai has said that if a new fund investing in high-yield bonds were established, investment conditions and the level of risk and return would determine interest among investors.