Banks forced to rely less on bills of exchange

While the Securities and Exchange Commission (SEC) is stepping up restrictions on B/E issuance, it is relaxing other rules to facilitate banks’ issuance of shortterm debentures and other financial papers.
As of end-2011, outstanding B/Es issued by Thai commercial banks reached Bt1.57 trillion, or 16.58 per cent of their funding sources, against 6 per cent overseas, according to the watchdog. The value of B/Es raised by non-financial issuers was only Bt320 billion.
“This creates huge risks, as B/Es are not counted as deposits and are not entitled to protection from the Deposit Protection Agency,” said SEC secretarygeneral Vorapol Socatiyanurak.
To minimise investment risks, the SEC has amended its issuance rules. The minimum face value would be Bt10 million, except for B/Es issued to a particular group of investors, or issues with no more than 10 outstanding items at a time. The papers must also contain a warning that they are not protected by the DPA.
New issues must be non-transferrable. For transferable items, limited obligations from transferors must be expressed. No derivatives on B/Es are allowed. They must also be sold through companies with securities licences, which can consider the right products for the right investors. At present, banks are selling B/Es on their own.
“B/Es now offer deposit-rate-like returns or returns from associated derivatives,” Vorapol said. “Because banks issue and sell bills of exchange, people may wrongly believe that B/Es enjoy the same protections as deposits. In that case, investors who are the second-last bearers could be pressured to show responsibility.”
To faciliate short-term bond issuance, the SEC exempts short-term debenture issues from listing by the Thai Bond Market Association. Foreign-bank-branch issuers can also use the parent companies’ ratings for the issues.
The SEC has also formulated rules to support the issuance of more complex debentures, aside from derivative debentures. But offerings are limited to investors with more than Bt50 million in net worth, more than Bt4 million in annual income, or more than Bt10 million in investment portfolio.
To be eligible, institutional buyers must have more than Bt100 million in equities or investment portfolios worth more than Bt20 million. A single filing is required in a year, and the issuer can raise an unlimited amount from the issue. If able to meet all regulations, the issuers need no financial advisers or rating.