Stressed bonds call for market reform

POLICY FOCUS

- PASINEE RERKPIBOON PHUMJIT SRI-UDOMKAJORN

Not too long ago, Thai Airways was all but written off. After a staggering loss of more than 141 billion baht and a default on over 71 billion baht in bonds from mismanagement and the pandemic in 2020, the once-proud national airline seemed doomed.

Its path was far from smooth — unlike its slogan, "Smooth as Silk".

But then, something unexpected happened. It made a profit.

Within two years, Thai Airways clawed its way back from collapse through a bold debt restructuring plan. The airline's recovery didn't just turn heads - it raised a pressing question: if this company could pull through, why can't others get the same chance?

It's a rare example of a stressed bond - debt in default or at serious riskbeing turned around. That success story should have opened the door for others.

That's why it might be time for the system to give good, capable issuers those in trouble but not beyond repair - a real shot at bouncing back. One way is to create more channels for stressed bonds to change hands. Investors who need quick cash could pass them on to buyers who know what they're doing - experts who can take over, manage the debt, and turn things around.

However, the road of new opportunities for stressed bonds in Thailand remains rocky.

Today, the Thai capital market has two main ways to deal with these troubled debts. Neither is working well, either on paper or in practice.

The first involves amending the law so asset management companies (AMCs) can step in. At present, they can buy bad loans from banks, but not stressed bonds. The Thai Bond Market Association (ThaiBMA) wants to change that by pushing to amend the 1998 Asset Management Company Act to make "bad loans" include stressed bonds.