In the past, private limited companies were not allowed to issue convertible debentures under the Thai Civil and Commercial Code. However, in 2021 with the amendment to the Securities and Exchange Act B.E. 2535 (1992) and the recent issuance of the relevant Notifications, private limited companies which are qualified as small or medium-sized enterprises (SME) are now permitted to issue convertible debentures.
What is Convertible Debenture?
A convertible debenture is a long-term debt instrument issued by a company that can be converted into equity shares after a specific period of time. This long-term debt security pays interest returning to the debenture holder like any other debenture. The unique feature of convertible debenture is that there is exchangeable for equity shares at specified times. This feature gives the debenture holders security as they may offset some of the risks involved with investing in unsecured debt.
Qualification of the Offeror
In order to be qualified to issue and offer the SME convertible debentures (Debentures) by way of private placement, the Offeror must meet the following criteria:
- Falling under the definition of “SME” under the Ministerial Regulation on the Designation of the Characteristics of Small and Medium-sized Enterprises B.E. 2562 (2019), which can be concluded as follows:
- Being registered in the Capital Market Fundraising Promotion Project for SMEs with the Office of Small and Medium Enterprises Promotion.
Qualification of the Investors
Given that this type of fund raising may pose significant risk to investors, securities offerings may only be made to certain types of investors as prescribed in Section 6 of the Notification of the Capital Market Supervisory Board No. Tor. Jor. 17/2563, as follows:
- For both small and medium-sized enterprises, the offer may be made to;
(a) Institutional investor (II), venture capital (VC), private equity (PE) or angel investor; and
(b) Directors and employees of the Offeror or its subsidiary, including a special purpose vehicle (SPV) which is incorporated for the purpose of allocating securities to the directors and employees.
- For medium-sized enterprises, the offer may be made specifically to not more than 10 investors with the aggregate value of not more than 20,000,000 Baht, provided that:
(a) The aggregate value shall be calculated from the offering price; and
(b) The investor head count and aggregate value of the offer made under item (2) shall not be included in the calculation, regardless of whether or not the offer in item (1).
Duties of the Offeror under the Notifications
There are several duties which the Offeror must perform in relation to the issuance and offering of the Debentures under the Notifications, as follows:
- The SME Factsheet using the form prescribed by the Securities and Exchange Commission (SEC) must be prepared in order to provide investors with important information for their investment consideration (e.g., type of business, list of major shareholders, financial information and detail of Debentures);
- The Offeror must register the transfer restriction of the Debentures with the SEC Office;
- The offering of the newly issued Debentures may not be advertised to the public advertisement, to only specific investors is allowed; and
- The sales of Debentures or the conversion of Debentures must be reported to the SEC Office within 15 days from the closing date of the offer or the date of the conversion of Debentures, as the case maybe.
Duties of the Offeror to register the investment amount as a registered capital
Given that the Offeror is a private limited company, apart from the foregoing duties under the Notifications, the Offeror will also need to satisfy all other general requirements and procedures of the Department of Business Development, Ministry of Commerce (DBD) in order to register the investment amount as a company’s registered capital.
Recently, there is no specific regulation on the capital increase registration to serve the Debentures. The Offeror should proceed with the capital increase registration in ordinary process as stated in the Civil and Commercial Code.
Summarized a complex procedure in a chart!
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