The Securities and Exchange Commission (SEC) has issued guidelines for investors as Stark Corporation faces the possibility of defaulting on bond payments worth nearly 9.2 billion baht. The SEC has emphasised that investing in debt securities carries high risks and that investors could lose both principal and interest.
The guidelines aim to clarify the roles and functions of bond representatives in protecting investors’ rights and interests in the event of a default. Tayakorn Jitrakuldhacha, director of the SEC bond department, highlighted that a major risk for bond investment is the default, which occurs when the issuer is unable to pay the principal or interest as scheduled.
Bondholders have representatives for each generation of holders, responsible for demanding payment of mandatory collateral and claims for damages to bondholders. They also provide various information to investors. In Stark’s case, the bondholders’ meeting on May 31 called for a call default of two debenture series worth 2.24 billion baht, making it highly unlikely that Stark will be able to pay three other bond series with a total outstanding value of around 6.96 billion baht.
The bondholders’ representative may need to hold a bondholders’ meeting to seek approval for various actions, such as requesting an extension of the repayment period or suing for compulsory payment or collateral. The SEC advises bondholders to monitor news from bondholder representatives and attend bondholder meetings to protect their interests.
Investors should study the meeting documents thoroughly and ask questions of the bond issuer at meetings, said the SEC. Investors should analyse the information before making a decision and voting to protect their rights and interests.
When a bond issuer faces forced payment, bondholders should prepare documents for proof of bond ownership and, if necessary, confirmation of bondholder status.
The differences between secured and unsecured bonds are that secured bondholders have the right to claim debt repayment from the assets used as collateral, while unsecured bondholders have rights equivalent to general creditors of the company. Bondholders can monitor the progress of collateral enforcement or debt repayment from the bondholder representative, who provides various information to investors.
The SEC urges bond investors to study all provided information to understand the risks and returns and allocate funds appropriately for their risk appetite, reports Bangkok Post.
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