15-9-2023 (BANGKOK) Thailand is experiencing a surge in corporate bond defaults due to the central bank’s recent rate hikes, which have driven up financing costs and made it challenging for some issuers to secure funds for repayments. Investor caution towards non-collateral-backed bonds is also contributing to the rise in defaults, dampening overall market sentiment.
One recent default came from JKN Global Group, the owner of the internationally renowned Miss Universe Organization, which failed to repay a 443 million baht ($12 million) corporate bond due on September 1. Liquidity issues arose after the company diversified into skincare and tourism, following its acquisition of the Miss Universe Organization franchise.
As of August 31, seven listed companies had missed redemption deadlines, totaling 19 billion baht in combined debt. This surpasses the total defaults of 13.5 billion baht that occurred from 2016 to 2022. These struggling companies span various sectors, including asset management, property development, electronics, renewable energy, and entertainment.
Property developer All Inspire Development has failed to repay a 2.3 billion baht bond, while asset manager Asia Capital Group has missed payments worth 2.6 billion baht. Holders of All Inspire Development debt have authorized legal action to compel repayment, with a trial scheduled for October.
In 2022, Thai companies issued a record-breaking 1.27 trillion baht in corporate bonds, taking advantage of favorable monetary policies in anticipation of a post-pandemic economic recovery. Investors flocked to corporate bonds, leaving less capital for new issuances. Now, issuers must offer higher interest rates to attract investors.
The 9.2 billion-baht default by Stark Corporation, a wire manufacturer that faced fraud allegations, has shaken confidence in Thailand’s financial industry and regulators. Stark missed deadlines on five bonds, and regulators have filed fraud cases against 10 executives. Raising funds to repay debt remains uncertain.
Investors are becoming increasingly cautious about corporate bonds, further complicating issuances for businesses looking to expand or refinance debt. Some analysts predict that corporations will resort to bank loans, incurring higher financing costs due to rising interest rates.
The Bank of Thailand has raised its policy rate seven times in a row, reaching a nine-year high of 2.25% in August, aiming to control inflation. This poses challenges for corporates, particularly smaller ones, in rolling over or issuing bonds amid rising interest rates.
Besides alleged fraud and liquidity issues, Thailand’s bond market faces challenges from prolonged political uncertainties, rising interest rates, and a fragile economic recovery. The recent alleged fraud case involving a major company has further diminished investor appetite for corporate bonds.
The Thai Bond Market Association has issued a caution notice on a debenture issued by the Thai arm of Hong Kong-based property developer Risland, citing a recent rating downgrade. Fitch Rating (Thailand) downgraded Risland’s rating from investment grade to speculative grade due to dwindling cash flow and the impact of China’s economic conditions on its operations.
