On April 19, 2020, the Royal Gazette published the "Royal Decree on the Stabilization of the Financial System and Economic Security of the Country, B.E. 2563" or the Corporate Bond Stabilization Fund (BSF), which was previously approved by the Cabinet on April 7, 2020, based on a proposal from the Bank of Thailand (BOT). The key points are as follows:

Fund Details

  1. A fund will be established called “Fund for Maintaining Liquidity in the Corporate Bond Market” with an initial limit of no more than 400 billion baht, and the Bank of Thailand will be the sole holder of the fund units.
  2. The objective is to maintain stability and liquidity in the private corporate bond market affected by the COVID-19 pandemic through investments in newly issued corporate bonds.
  3. In cases where the corporate bond market faces severe liquidity issues due to the COVID-19 pandemic and there is an urgent need to stabilize the overall economy and financial system, the Bank of Thailand, with the approval of the Minister, is authorized to buy and sell private corporate bonds that are not newly issued.
  4. The Royal Decree will be effective for 5 years from the date of enforcement, unless the Cabinet, upon the recommendation of the Bank of Thailand, deems it necessary to extend the period.
  5. The corporate bonds that the fund can invest in must meet the following criteria:
    • They must be newly issued bonds to refinance existing bonds that are maturing.
    • The issuer must have other funding sources that are not from the fund, amounting to at least 50% of the total maturing bonds, unless exempted by the fund's supervisory committee.
    • The bonds must be issued by entities with an investment-grade credit rating, excluding bonds offered to the fund, the public, or any individuals at the same time that are rated below investment grade. This rating must be conducted by organizations designated by the Bank of Thailand.
    • The issuer must be a registered company operating in Thailand, excluding state enterprises, financial institutions, or companies within the financial institution group.

Fund Management Mechanism

  1. A supervisory committee for the liquidity maintenance fund will be established, consisting of:
    • The Permanent Secretary of the Ministry of Finance as the chairperson.
    • The Governor of the Bank of Thailand as the vice-chairperson.
    • The Director of the Public Debt Management Office as a committee member.
    • The Director of the Fiscal Policy Office as a committee member.
    • Up to three qualified experts appointed by the Minister of Finance upon the recommendation of the Governor of the Bank of Thailand, with expertise in capital markets, corporate bonds, or law.
    • The Governor of the Bank of Thailand will appoint one staff member from the Bank of Thailand as the secretary.
  2. The supervisory committee will have the following powers and duties:
    • To set policies, operational guidelines, and investment frameworks, including risk management of the fund's investments in accordance with its objectives. The investment framework must include:
      • Types, characteristics, pricing or yield frameworks, and maturity of the bonds to be invested in.
      • Objectives and restrictions on the use of funds.
      • The proportion of the fund's investment in bonds compared to other funding sources of the issuer must not exceed 50% of the total maturing bonds, unless exempted by the supervisory committee.
      • Other criteria or conditions that must not be discriminatory or create unnecessary procedures.
      • If the issuer offers bonds to the public or any individuals and provides guarantees to bondholders, the bonds purchased by the fund must have guarantees no less than those of other bondholders.
    • To appoint a securities company to manage the fund, which must be a licensed securities company authorized to manage mutual funds.
    • To oversee the operations of the investment committee, including the fund's investments and operations in accordance with its objectives.
    • To perform other actions related to or necessary for fulfilling the duties and powers of the supervisory committee.
    • To report the fund's operational results to the Minister annually.
  3. A investment committee will be established, consisting of:
    1. One Deputy Governor of the Bank of Thailand appointed by the Governor as the chairperson.
    2. A representative from the Public Debt Management Office as a committee member.
    3. A representative from the Government Pension Fund as a committee member.
    4. Up to two qualified experts appointed by the Governor of the Bank of Thailand from individuals with expertise in capital markets or finance, as committee members.
    5. The Governor of the Bank of Thailand will appoint one staff member from the Bank of Thailand as the secretary.
  4. The investment committee will have the authority and responsibility to select private corporate bonds and may appoint advisors to provide recommendations to the investment committee, reporting operational results to the supervisory committee at least every three months.
  5. A performance review committee will be established to set guidelines and methods for calculating profits or losses and compensation amounts, and to determine the amount of profit or loss based on these guidelines and methods, consisting of:
    • The Director-General of the Comptroller General's Department as the chairperson.
    • A Deputy Director of the Bureau of the Budget appointed by the Director of the Bureau of the Budget as the vice-chairperson.
    • A Deputy Governor of the Bank of Thailand appointed by the Governor of the Bank of Thailand as a committee member.
    • The Director of the Public Debt Management Office as a committee member.
    • The Director of the Fiscal Policy Office as a committee member.
    • The Comptroller General's Department will appoint one civil servant from its ranks as the secretary.
    • The Bank of Thailand will appoint one staff member from the Bank of Thailand as the assistant secretary.
  6. The appointment of a securities company to manage the fund, the appointment of advisors, and the purchase or sale of investment units or bonds must comply with the regulations set by the supervisory committee, without having to follow the laws on public procurement and public asset management.

Compensation for Losses, Dissolution, and Other Details

  1. If profits arise from operations, they shall be remitted to the Ministry of Finance as state revenue. If losses occur to the Bank of Thailand, the Ministry of Finance shall compensate the Bank of Thailand for losses up to 40 billion baht.
  2. When deemed appropriate for the benefit of the state or when it is no longer necessary for the Bank of Thailand to be the sole holder of investment units, the supervisory committee may decide to allow the Bank of Thailand to sell its investment units or allow the fund to sell investment units to other parties according to the guidelines, methods, and conditions set by the supervisory committee.
  3. Before the end of the term, the supervisory committee shall consider and propose to the Cabinet to determine the methods and procedures for terminating operations, whether to redeem investment units or sell investment units to others to continue the fund's operations or by other means. In cases where the fund continues to operate after the end of the term, the fund must notify the Office of the Securities and Exchange Commission, and it shall be deemed that the fund has been established in accordance with the laws on securities and the securities market.

SOURCE :www.thaipublica.org