Thailand SEC Approves Rules on High-yield Bond Funds

Source: Regulation Asia Editors, Regulation Asia 2020-07-16

High-yield bond funds can be set up as non-redeemable closed-end mutual funds or investment trusts, with a maturity period of at least two years.

Thailand’s SEC (Securities and Exchange Commission) has approved rules for the establishment of high-yield bond funds to help non-investment-grade debenture issuers.

The initiative is aimed at providing bridge financing to non-investment-grade debenture issuers facing liquidity shortages, and to help stabilise the high-yield bond market.

Under the rules, the funds can be set up as non-redeemable closed-end mutual funds or investment trusts, with a maturity period of at least two years.

Participation will be limited to institutional and high-net-worth investors, where the offer process must be consistent with the sale of high-risk debt instruments, including rules on risk disclosure.

The fund can invest in high-yield bonds via primary or secondary markets, where the issuers are companies with good governance but which have been assigned credit ratings lower than investment grade.

Investment in high-yield bonds should make up at least 60 percent of total NAV, where no single debenture issuer accounts for more than 25 percent of exposure. The rest can be invested in other asset classes as permitted for fixed-income funds, except distressed bonds.

Debenture issuers can use the capital raised to pay off existing bond liabilities as a priority before the funds can be used for business operations. A mechanism must be in place to monitor the use of funds.

High-yield bond funds are expected to start emerging by next year.

Thailand Securities and Exchange Commission

Thailand SEC Approves Rules on High-yield Bond Funds

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