Organisations to amend legal framework for bonds

The Thai Bond Market Association (ThaiBMA) is working with the Securities and Exchange Commission (SEC) to amend the Securities and Exchange Act and bankruptcy law, closing legal loopholes that have allowed some bond issuers to avoid repayments through rehabilitation proceedings.

The move follows a series of high-profile defaults that have damaged confidence in Thailand's debt market, said ThaiBMA president Ariya Tiranaprakit.

The proposed reforms will be submitted to the SEC-led Bond Task Force, a multi-agency committee established to strengthen the bond market, with detailed measures expected to be announced soon, she noted.

STRONGER SAFEGUARDS

According to Ms Ariya, ThaiBMA wants to strengthen protections for retail investors by introducing stricter bond covenants to prevent misuse of proceeds, including limits on dividend payments, share buybacks and additional borrowing that could weaken an issuer's repayment capacity.

Companies would need board and shareholder approval before changing the stated use of bond proceeds, reducing the risk of funds being diverted.

The association is also proposing tougher due diligence requirements for bond underwriters under a "comply or explain" framework, requiring deeper reviews of issuers' operations and governance before fundraising.

In addition, ThaiBMA is seeking amendments to bankruptcy law to strengthen bondholders' rights during rehabilitation and to expand the authority of bondholders' representatives, she said.

The reforms follow defaults by JKN Global Group and Stark Corporation that exposed weaknesses in investor protection.

Although bondholders rank ahead of shareholders during liquidation, "lengthy court proceedings and limited remaining assets often result in low recovery rates", said Ms Ariya.

"Our objective is to prevent intentional defaults, strengthen market discipline and restore long-term confidence in Thailand's bond market," she said.

RESILIENT MARKET

Despite tighter regulations, ThaiBMA expects bond issuance to remain strong in the second half of 2026, maintaining its full-year forecast for long-term corporate bond issuance at 880-900 billion baht, as roughly 410 billion was issued in the first half.

More large issuers are expected to return to the market as funding conditions improve, said Ms Ariya.

Corporate bonds worth 417 billion baht are scheduled to mature in the second half, with more than 90% rated investment-grade. High-yield and non-rated bonds account for the remaining 10%, although around 20 billion baht of non-rated bonds remain at risk of default.

Thailand's bond market expanded 2.0% from year-end 2025 to 18.3 trillion baht by the end of the second quarter, equivalent to 96% of GDP, while long-term corporate bond issuance increased 2.7% year-on-year, led by the energy, financial and property sectors.

CONTINUED INFLOWS

Foreign investors remained net buyers of Thai bonds, with net inflows totalling 30 billion baht in the first half of 2026 and total holdings reaching 947 billion baht, or 5.2% of the outstanding market.

However, she cautioned that a weaker baht remains the biggest risk to capital flows, as foreign funds historically tend to exit when the US dollar strengthens. Regional developments, particularly Indonesia's economic recovery, could also redirect investment away from Thailand.

Thailand maintains strong economic fundamentals, including international reserves of more than US$200 billion, fiscal stability and resilient foreign bond holdings, which should help cushion potential outflows, said Ms Ariya.

Market participants expect the Bank of Thailand to keep its policy rate unchanged at 1% through the rest of the year. Although government bond yields may edge higher, investors continue to favour high-quality investment-grade bonds in a flight to quality.

Looking forward, ThaiBMA sees strong growth potential in green and sustainability-linked bonds, which account for less than 6% of Thailand's corporate bond market.

Supported by digital trading initiatives as well as fast-developing environmental, social and governance and artificial intelligence-driven infrastructures, the association aims to build a more transparent, innovative and sustainable bond market, she noted.