On 9 July 2020, the
CMSB Meeting No. 13/2563, chaired by SEC Secretary-General Ruenvadee
Suwanmongkol, passed a resolution approving the regulations related to the
establishment of high yield bond funds that will help increase liquidity and
allow debt issuers affected by the COVID-19 pandemic to continue their business
operation (bridge financing). This in turn will increase liquidity and
stability of the high yield bond market as well as offer an alternative for
high net worth investors to make investments through professionals instead of
investing directly in such instrument.
Earlier, on 16 June 2020, the CMSB Meeting
passed a resolution approving in principle the amendment of the regulations to
facilitate the establishment of high
yield bonds. Later, on 7 July 2020, SEC held a meeting to discuss the matter
with business operators.
In essence, the regulations on the
establishment of high yield bonds and an appropriate investor protection
mechanism include the following criteria:
(1)
Eligible investors are institutional investors and/or high net worth
investors only;
(2) Eligible investment vehicles are mutual fund
or trust fund (to be established by the end of 2021);
(3)
Maturity term is no less than two years for a non-redeemable fund; unitholders
cannot redeem units before maturity while auto redemption and additional
subscription is allowed;
(4)
Investible high yield bonds must not have negative issues on good
corporate governance and must be invested at the proportion of no less than 60
percent of the net asset value (NAV), either in the primary or secondary
market. The rest can invest in other assets investible by debt securities funds
and investment in distressed bonds is prohibited;
(5)
Concentration in corporate bonds of any issuing company must not exceed
25 percent of the NAV as of the investment date;
(6)
Regulations related to concentration limit of the issuance value and/or
liabilities of the invested business are exempted;
(7)
Sales conduct must be as strict as those imposed on the sale of high-risk
products and the associated risks must be clearly disclosed;
(8)
Debt issuers must use the raised money to repay for the earlier corporate
bonds or to fund business operation on the condition that the earlier corporate
bonds must be repaid first, and a mechanism for management and monitoring of
money spending according to the set conditions must be put in place.
“This regulatory amendment will open up opportunities for interested entities
to set up and manage a high yield bond more flexibly within a permissible
scope. Once established, we believe that such fund will benefit the issuer,
investors, related business operators, the capital market and the economy at
large,” said SEC Secretary-General Ruenvadee.
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