(Bloomberg) -- Thailand plans to regulate the sale of baht-denominated bonds by foreign entities to shield local investors, a move that risks driving away borrowers from Laos and Myanmar.
Under a new set of rules proposed by the Securities and Exchange Commission, overseas sellers of baht bonds will be required to have their new securities rated by international credit rating companies for both private and public offerings. They will also require the approval from the commission starting Jan. 1.
Thailand’s finance ministry currently issues approval to foreign issuers and there’s no obligation for them to obtain ratings from global companies.
The requirement of minimum investment grade credit rating will help protect investors from risky overseas issuers, said Pornanong Budsaratragoon, the commission’s secretary general.
Thailand has promoted itself as the region’s financial center for governments and companies in neighboring countries to raise capital for their economic development. The policy has enabled government of Laos and its state-owned utility to emerge as key issuers of baht-denominated bonds in recent years to finance infrastructure projects in the land-locked nation.
The rating requirement may lessen the appeal of Thailand as a fund-raising source for the governments and companies in neighboring countries, especially Laos, said Adisorn Singhsacha, chief executive officer of Twin Pine Group Co., a Bangkok-based financial adviser. Most of the issuers don’t have credit ratings that would qualify for selling bonds to Thai investors, he said.
Laos has a sovereign credit rating of Caa3 by Moody’s Investors Service, about nine notches below the lowest investment grade, according to data compiled by Bloomberg. Twine Pine has advised Laos finance ministry and EDL-Generation for selling baht-denominated bonds.
Laos’s finance ministry has about 28 billion baht ($794 million) of outstanding bonds, while EDL-Generation Pcl, the country’s state-controlled power utility, has about 22 billion baht of baht-denominated debt securities, according to data compiled by Bloomberg.
Other foreign issuers of baht-denominated bonds in the past include Singapore-listed Yoma Strategic Holdings Ltd. with operations in Myanmar, Malaysia’s Malayan Banking Bhd. and the Export–Import Bank of Korea.
Outstanding baht bonds of foreign firms will probably be exempted from new credit rating requirements to avoid repayment difficulties, according to the SEC statement. The regulator will set up a commission to consider approvals for any proposed new bond sales to roll over their maturing debt. The agency is seeking public feedback on the new rules until Dec. 20.
Foreign entities raised about 7 billion baht via selling baht-bonds in the first nine months of this year, compared with 15.9 billion baht in 2022, according to SEC data.
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