THAILAND: An Introduction to Capital Markets

An Upgrade of Listing Criteria and More Rigorous Supervision Strengthen Thai Listed Companies

Overview  

In 2023, Thailand, like the rest of the world, has faced a challenging year. The country has been affected by geopolitical tensions both regionally and globally, exacerbated by rising interest rates and high inflation. On the domestic front, Thailand’s tourism industry has shown significant improvement, but the post-COVID recovery has been slow, partly due to China’s economic slowdown, and Chinese tourists have yet to reach pre-pandemic numbers. These factors, along with a protracted government formation process, have generated uncertainty among investors, which continues to hinder the nation’s economic prospects.

However, the newly established government has been actively pursuing economic diversification to attract foreign investment, encourage digital innovation and stimulate domestic consumption to address these challenges. Despite the difficulties, this government’s initiatives reflect a proactive approach to adapting to evolving economic circumstances. The overall market conditions in Thailand have been challenging in 2023, resulting in diminished returns for the capital markets. As a consequence, the demand for new IPOs has waned, making it more challenging to raise capital through the stock market. Nevertheless, there is a growing interest in preparing IPO deals, positioning the market for a rebound when conditions become more favourable.

Regulatory reform 

To compound these challenges, Thailand’s capital markets have experienced setbacks due to high-profile scandals involving accounting irregularities, debt defaults, and fraud within Thailand’s listed companies in recent years. This has profoundly eroded investor confidence. As a consequence, it is anticipated that there will be a surge in the cost of raising funds through capital markets. Arrangers and credit rating agencies are likely to demand higher fees to mitigate the increased risk. For many companies, accessing funds through public markets and securing financial loans from banks could become more challenging. These challenges underscore the imperative for a rigorous and transparent regulatory framework to restore trust and encourage participation in Thailand’s capital markets.

To address concerns in the capital markets, regulators have embarked on a robust reform agenda by tightening rules in order to restore confidence and boost investor trust. The Stock Exchange of Thailand’s (SET’s) board recently approved a comprehensive overhaul of listing regulations, which includes heightened measures for both new listings and backdoor listings, increased free-float ratios, public offerings, and higher profitability and shareholders’ equity thresholds. The new rules also include measures for delisting financially unhealthy companies, and escalation protocols to protect public investors against suspicious activities or events, such as financial instability, consecutive years of loss generation, defaults, disclaimers of opinion for audit reports, and orders of special audit. It is intended that the new set of obligations will also apply to smaller companies under the Market for Alternative Investment (MAI).

Furthermore, the Securities and Exchange Commission (SEC) launched the “Stronger Security Issuers” initiative towards the end of 2022, aiming to enhance good corporate governance for securities issuers. The SEC’s new guidelines emphasise preventative measures and regulatory enhancements, particularly regarding the good governance of security issuers and related parties such as financial advisers and auditors. The new rules are set to be implemented in early 2024. This initiative involves the following.

• There will be a rigorous evaluation and supervision process for companies listed on the stock exchange to ensure that these companies can achieve sustainable growth and comply with the principles of good corporate governance. This means revising the listing rules and strengthening back-door listing criteria so that, for example, new IPO applicants must submit financial statements for the past three years that comply with publicly accountable entity standards.

• Criteria for material transactions and related party transactions will be enhanced to increase transparency to investors and shareholders by ensuring that companies are providing clearer information such as business plans, purpose or intended use of funds, and regular updates on the progress of ongoing transactions.

• The roles and responsibilities of company personnel, such as directors, audit committee members, independent directors, and executives, as well as financial professionals like auditors and financial advisers, will be strengthened to ensure independence and efficient performance of their duties, and to genuinely protect shareholders’ interests.

• Investor awareness will be enhanced by promoting understanding of their rights and responsibilities, empowering investors to make informed decisions and navigate the financial markets with confidence. The aim of providing investors with the knowledge and tools they need to safeguard their interests is to create a more transparent and secure investment environment.

Outlook for 2024  

The outlook for Thailand in 2024 is good as there is the potential for resilience and adaptability in the face of evolving challenges. While global geopolitical tensions and the performance of the newly established government may introduce some uncertainties, they also present opportunities for Thailand to showcase its ability to navigate complex issues. The change in leadership at the SEC offers the prospect of regulatory adjustments that will enhance the business environment. These changes may bring innovation and improvements, although the specific direction remains to be seen. In summary, 2024 holds promise for Thailand’s capital markets, where challenges can spark innovation and lead to a more dynamic and responsive economic landscape.