14-8-2023 (BANGKOK) The Bank of Thailand is closely monitoring the rollover of corporate bonds in the second half of the year following an increase in defaults during the first half. Although no corporate bonds are scheduled to mature in the latter half of 2023, the central bank is particularly concerned about the rollover process in the high-yield segment.
According to the Bank of Thailand’s financial stability report for the second quarter, investors have become more cautious about debenture investment due to the rise in company defaults in the first half of the year.
In the first six months of 2023, three companies reported bond defaults, accounting for 0.3% of the total outstanding corporate bonds. Comparatively, the defaults constituted 0.2% of the total bond value in 2021, involving 12 companies, and 0.1% in the previous year, involving three companies.
The report also highlighted that the number of local companies receiving negative outlooks or rating actions increased by 5.5 times on average from January to April this year, compared to 3.5 times during the same period last year.
The unsubscribed corporate bonds rose to 0.6% of the total corporate bond issuance in May, up from full subscription in April and 0.2% in March.
However, the Bank of Thailand noted that investors’ concerns about bond defaults have been contained, as the yield spread of investment-grade corporate bonds remained steady in the second quarter compared to the first quarter.
Despite the overall resilience of the corporate bond market, the central bank emphasized the need to monitor local companies’ ability to raise fresh funds through the bond market.
The Bank of Thailand stated that more corporate issuers are receiving negative outlooks or rating actions due to internal factors specific to each enterprise, according to a previous statement issued by the central bank. As a result, investors are likely to exercise greater caution when it comes to high-yield bond investments, especially non-rated bonds.
Thiti Tantikulanan, the head of capital markets at Kasikornbank, expressed confidence that this development would not significantly impact credit bonds for both issuers and investors, as the overall bond market in the country remains stable. He stated that Kasikornbank’s corporate clients, who are scheduled to issue credit bonds in the latter half of the year, have maintained their plans.
Wut Thanittiraporn, the senior executive vice-president of CIMB Thai Bank (CIMBT), shared a similar sentiment, stating that the central bank’s monitoring of corporate bond rollover would not affect investment-grade debentures. However, he noted that high-yield bonds could be impacted due to the higher risk of default.
Mr. Wut emphasized that CIMBT, as both a bond underwriter and seller, does not offer non-rated bonds based on their strong risk management policy. He added that, in addition to helping customers mitigate risk, maintaining reputation is a key concern for the banking business.
