SEC opens room for junk bonds offering
Commercial banks, mutual funds and provident funds will now be able to invest an unlimited sum in unrated bonds or below-investment grade (junk) bonds, under a new investment rule by the Securities and Exchange Commission.
The SEC announced today that the Capital Market Supervisory Board approved the rule specifying "accredited investors" (AI) and their investment options. From now, unrated bonds and junk bonds can be offered to these investors.
Vorapol Socatiyanurak, secretary-general of the securities watchdog, said that these will widen the fund-raising opportunity, while financially-strong investors are offered with more investment alternatives.
AI cover all institutional investors and high net-worth investors. High net-worth individuals are those with Bt50 million or higher in assets or annual income of Bt4 million or higher, or those with equity portfolio worth over Bt10 million. Corporate high net-worth investors are those with equity portfolio of Bt20 million or more.
In the next stage, some papers offered to AI would be allowed for offering to individual investors. The SEC will later set the minimum investment in line with the complexity and associated risks of such papers.
According to Virapol, in the first stage, AI would be allowed to invest in unrated bonds. Mutual funds can also set up fixed-income funds for investment in the securities, for corporate investors. Each corporate investor cannot hold more than 25 per cent of the fund's net asset value. If the funds are to be extended to cover retail investors, minimum investment is required to be Bt500,000 and corporate limit is set at 15 per cent.
Issuers are also required to carry out suitability test.
Under the SEC's specification, there are 18 categories of insitutional investors
1. Bank of Thailand
2. Commercial banks/specialised banks
3. Finance/credit foncier/securities companies
4. Insurance companies
5. Asset management companies
6. Provident funds
7. Private funds
8. Organisations or specialised juristic entities, like Government Pension Fund and Social Security Fund
9. Futures brokerage companies
10. Foreign financial institutions
11. Deposit Protection Agency
12. Financial Institutions Development Fund
13. Stock Exchange of Thailand
14. Corporations
15. Companies owned over 75% by investors in Categories 1-14
16. Foreign investors sharing characters of investors in Categories 1-15
17. Individual licensees for fund management and futures brokering
18. Others as specified by the SEC.
