The growth of corporate bond market in Thailand remains strong, with debenture issuance reaching a record high in 2015 and set to rise further. A consistently low rate environment, along with tightening credit spreads, has benefited highly-rated issuers to lock in cheap funding ahead of a potential rise in interest rates. Companies issue debentures to increasingly refinance maturing debt as funding needs for business expansion soften over subdued economic growth. While overall activity in corporate bond market is encouraging, there remain concerns over rapid growth of non-rated debentures by firms with low credit quality. The higher default risk and sudden disruption in market liquidity will see their funding costs rising markedly. It is expected that companies with low credit quality remain highly exposed to refinancing risk when the market abruptly loses confidence in their ability to repay debt, because they also lack a sufficient back-up source of liquidity.
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