‘Rethink’ for asset management firms

 
 ASSET-MANAGEMENT companies will have to adjust their investment approach for non-rated bills of exchange (BEs) because of the risk of defaults, said Finance Minister Apisak Tantivorawong.
BE defaults are likely to shake investor confidence in the debt market, with wrong expectations on liquidity by issuers a reason for such defaults, according to the Thai Bond Markets Association (ThaiBMA).
Apisak does not believe BE defaults will have a significant impact on the market because the volumes involved are small. However, he said it might be enough to hurt retail investors who indirectly invest in these instruments through asset-management companies, the main investors in debentures.
“We hope the asset-management companies will have enough knowledge to weight the risk of BEs, because they are the buyers of those instruments. If a BE has high risk, individual investors will pull out eventually. 
Hence the asset-management companies will have to adjust as well to retain their customer bases,” he said. 
He said the issue was also related to the Securities and Exchange Commission, as it was in charge of approving the issuance of non-rated BEs.
Last year, non-rated debentures issued by listed companies were worth Bt40.97 billion, representing 10 per cent of all corporate debentures.
SEC secretary-general Rapee Sucharitakul said yesterday that the agency was closely monitoring debenture defaults.
He said that in the past 12 months, defaults on debentures issued by listed and non-listed companies amounted to only 0.03 per cent of total outstanding debentures, worth Bt3.58 trillion. 
Unrated debentures are limited to institutional and private-placement (PP) investors, he said, adding that as a result the impact of defaults was small compared with the overall bond market.
Mutual funds invested in default non-rated debentures are offered to only institution and PP investors, with unrated defaults worth only Bt368 million or 0.34 per cent of net asset value of the funds offered to those investors.
The SEC has requested the cooperation of unrated issuers with mostly short-tern debentures to check their financial status and closely monitor the market. They should also have a have second source of capital in case they face cash-flow shortages if their maturing debentures cannot be rolled over.
Rapee said the SEC had reiterated that asset-management companies had to manage their investments to the benefit of fund investors and follow the performance of funds to ensure that the funds’ risk appetite matches that of target investors.
Payong Srivanich, president of Krungthai Bank, said the bank had told KTB Asset Management to be cautious with BEs and take care of customers who invest in these instruments.
However, BE defaults are normal in an economic slowdown, and could result from rising non-performing loans. 
According to the ThaiBMA, maturing short-term debentures this month are tipped to be worth Bt68.924 billion, with the figure for next month forecast at Bt59.645 billion and Bt52.67 billion in March.
The issuers will roll over their maturing debenture to investors, and the default cases might discourage investors from renewing, according to the ThaiBMA.