SEC revises issuance rules to promote debentures as alternative to B/E fund source
Bangkok, February 28, 2012 – The SEC has revised issuance rules governing bills of exchange (B/E), short-term debentures and complex structured products to promote more fund mobilization through debt securities. The amendments will take effect on July 1, 2012.
B/E has become a frequent tool for fund raising by financial institutions, offering returns similar to those of deposits, with occasional structured features. Such conditions may mislead investors into believing that B/E is entitled to the same protection as bank deposits when in fact transferors of B/E are subject to recourse by subsequent buyers.
In addition, B/E characteristics are unsuitable for issuance in the form of structured product. It thus should be under strict regulation to protect investors while offering other alternatives for fund mobilization in place of B/E.
As for B/E, to prevent misunderstanding and widespread public distribution, the revised rules specify that B/E offering to the public must have the minimum face value of 10 million baht (except for private placement of up to 10 B/Es at any time) and must have a warning that such B/E is not entitled to protection of the Deposit Protection Agency.
To limit investment risks, B/E must not allow transfer of holders or if not prohibited, a warning must state clearly the limitations of the transferor’s responsibility. In addition, B/E as securities must not be derivatives embeded and must be offered for sale through intermidiaries licensed to undertake securities business such as securities companies or finanicial institutions.
Meanwhile, the SEC has relaxed certain rules on short-term debentures and B/E to allow issuing financial institutions to use financial statements prepared according to the generally accepted accounting standards and submitted during accounting periods as specified by the lead regulator.
In case of issuer being a branch of a foreign bank without restrictions on the parent bank’s responsibility, the credit rating of the parent bank may be used while B/E and short-term debentures issued by financial institutions and companies are waived from registration with the Thai Bond Market Association. Other relevant rules are under revision process and will be announced in due course.
To increase choices of offer for sale of structured products, the SEC has issued rules to facilitate issuance of debentures with complex features apart from the already governed structured debentures. The rules specify the procedure and timeframe for submitting applications and disclosure documents including the forms and contents will be more concise and more convenient, providing that the instrument’s features, the underlying assets, limitations and product risks will be in line with current financial institution’s practices.
“We conducted public hearings and discussed with commercial banks, insurance companies, issuers and relevant agencies. Their opinions and suggestions were taken into consideration to make sure that revised rules would not hinder fund raising and liquidity management while rendering proper investor protection. Financial institutions that used to rely on B/E fund source have time until end of June to prepare for compliance with SEC supervision,” said SEC Secretary-General Vorapol Socatiyanurak.
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- summary of rules on public offering of debt securities