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SEC announces CMSB’s approval for establishment of high yield bond funds in support of issuers affected by COVID-19

Friday 10 July 2020 | No. 130 / 2020

Bangkok, 10 July 2020 – The Capital Market Supervisory Board (CMSB) has approved the regulations for establishing debt securities funds whose investment policy concentrates in non-investment grade (high yield bonds) as a relief measure for debt issuers facing liquidity issue during the COVID-19 pandemic.

On 9 July 2020, the CMSB Meeting No. 13/2563, chaired by SEC Secretary-General Ruenvadee Suwanmongkol, passed a resolution approving the regulations related to the establishment of high yield bond funds that will help increase liquidity and allow debt issuers affected by the COVID-19 pandemic to continue their business operation (bridge financing). This in turn will increase liquidity and stability of the high yield bond market as well as offer an alternative for high net worth investors to make investments through professionals instead of investing directly in such instrument.

Earlier, on 16 June 2020, the CMSB Meeting passed a resolution approving in principle the amendment of the regulations to facilitate  the establishment of high yield bonds. Later, on 7 July 2020, SEC held a meeting to discuss the matter with business operators.  

In essence, the regulations on the establishment of high yield bonds and an appropriate investor protection mechanism include the following criteria:

(1)  Eligible investors are institutional investors and/or high net worth investors only;  

(2)  Eligible investment vehicles are mutual fund or trust fund (to be established by the end of 2021);

(3)  Maturity term is no less than two years for a non-redeemable fund; unitholders cannot redeem units before maturity while auto redemption and additional subscription is allowed;

(4)  Investible high yield bonds must not have negative issues on good corporate governance and must be invested at the proportion of no less than 60 percent of the net asset value (NAV), either in the primary or secondary market. The rest can invest in other assets investible by debt securities funds and investment in distressed bonds is prohibited;

(5)  Concentration in corporate bonds of any issuing company must not exceed 25 percent of the NAV as of the investment date;

(6)  Regulations related to concentration limit of the issuance value and/or liabilities of the invested business are exempted; 

(7)  Sales conduct must be as strict as those imposed on the sale of high-risk products and the associated risks must be clearly disclosed; 

(8)  Debt issuers must use the raised money to repay for the earlier corporate bonds or to fund business operation on the condition that the earlier corporate bonds must be repaid first, and a mechanism for management and monitoring of money spending according to the set conditions must be put in place.

“This regulatory amendment will open up opportunities for interested entities to set up and manage a high yield bond more flexibly within a permissible scope. Once established, we believe that such fund will benefit the issuer, investors, related business operators, the capital market and the economy at large,” said SEC Secretary-General Ruenvadee.