Thailand Seen Luring Foreign Investors as Notes Rules Eased

(Bloomberg) -- Brokerages are preparing to sell structured notes in Thailand after the relaxation of issuance rules as the nation’s securities regulator tries to expand a market that targets wealthy individuals in Asia.

KGI Securities (Thailand) PCL is readying back-office systems to sell new U.S. dollar products and is putting together documentation to get approval from Bank of Thailand to offer foreign currency notes. The rule changes that took effect in June include allowing equity-linked products tied to individual foreign companies and notes issued in overseas currencies such as U.S. dollars, according to the Thai Securities and Exchange Commission.

The relaxation of regulations is a part of efforts by authorities in Thailand, Southeast Asia’s second-largest economy, to make Bangkok the financial center of a Greater Mekong Sub-region that includes Vietnam and Cambodia. Policy makers also want to attract more funds from the growing ranks of rich individuals in Asia-Pacific -- private wealth in the region surged 10 percent to $17.4 trillion last year, surpassing North America for the first time, according to a June report by Capgemini SA.

“This is a big change that’s positive for the long term,” said Jenvit Chinkulkitniwat, a managing director in the equity derivatives business at KGI Securities, a Bangkok-based brokerage. “We hope it will bring in foreign investors to buy more structured notes. We expect to launch new products at the start of next year.”

The new regulations also abolish the previous minimum investment amount for structured products of 10 million Thai baht ($287,000) for institutions.

Currency Risk

Investors will now be able to buy Thai equity-linked notes in U.S. dollars, helping remove concern that they will be hurt by currency moves such as the weakening of the baht, according to Chinkulkitniwat. The Thai currency has declined about 4 percent against the dollar this year. It is trading at 34.85 per dollar as of 10 a.m. in Hong Kong.

“Structured note volume is still small compared to plain vanilla bonds” but banks now intend to offer more of these products, said Pariya Techamuanvivit, the director of corporate affairs at the Thai securities regulator. Relaxation of the rules will allow notes issuers to better match their asset and liability management needs while giving investors more alternatives, he said.

Last year, 26.2 billion baht of Thai structured notes were sold, compared with 9.04 trillion baht of domestic bonds, data from the Thai SEC and Thai Bond Market Association show.

New Markets

In Asia, structured products are typically sold to rich investors wishing to enhance returns. Singapore and Hong Kong have long been the region’s two main private banking hubs with countries including Indonesia recently offering more products to tap the region’s growing wealth.

“Structured notes are increasing in popularity in other markets in the region,” said Nopadon Nimmanpipak, the managing director in equity and derivatives trading at Phatra Securities PCL in Bangkok. “The new more flexible regulation will open up competition and products leading to more activity, which is better for the industry.”

To contact the reporter on this story: Viren Vaghela in Hong Kong at vvaghela1@bloomberg.net. To contact the editors responsible for this story: Richard Bedard at rbedard2@bloomberg.net, Ken McCallum