The Differences Between Each Type of Debenture Offering to Investors
When it comes to debenture offerings, there are certain regulations the companies offering these debentures must abide to under Thai law.
Depending on who they’re offered to, the main types of issuance methods are as follows:
- Private Placement – 10 (also known as “PP-10”)
- Institutional Investors (also known as “II”)
- High Net Worth (also known as “HNW”)
- Public Offering (also known as “PO”)
- Rights Offering/Preferential Public Offering (also known as “RO/PPO”)
This article aims to discuss the differences between each group and some of the underlying reasons why the regulations differ between them.
Public Placement – 10 (PP-10)
PP-10 debentures are offered towards a group of no more than 10 institutions /individuals. This debenture offering doesn’t require an underwriter as the 10 individuals involved within the company such as institutional investors, committee members, management team, major shareholders (Own more than 10% of the shares) and the company’s subsidiaries. Should the company offer PP-10 debentures to institutional investors, there is no limit as to the size of the offering and can be offered every 4 months, but if it’s offered to those individuals involved within the company, a maximum of THB50 million can be offered each time and the debt has to be paid off first before being able to offer another PP-10 debenture.
As the debentures are offered to a small group of either institutional investors or individuals, mostly chosen by the company, it is assumed that the investors are already relatively knowledgeable about the company which means that no credit rating is required. The company is also only required to publicly report when there is a significant event that has happened internally which could affect the outlook of certain investors.
Institutional Investors (II)
Unlike the PP-10 debentures, II debentures can be any size, meaning that there is no restriction as to how much can be raised per offering.
Similarly to PP-10 debentures, II also does not require an underwriter or a credit rating as it is assumed that those within the institutions would be well-educated enough to make financial decisions based off the public information available about the company. Similarly to PP-10, for II, the company also has to report significant events that occur, and on top of that they also have to submit their financial statements for the II to review.
High Net Worth (HNW)
What you’ll start to see with the next two types of offerings is the increased regulatory strictness of the Stock Exchange Commission (SEC) as the number of people the debenture is being offered to is much larger. For debentures offered to HNW individuals, an underwriter is required for the transaction to occur and the borrower also has to have a representative present. For the debenture to be offered, filings must also be submitted to the SEC for review. Post-issuance, much like for II, the borrower must submit the financial statements and also report when a significant event has occurred.
Public Offering (PO)
PO’s have the strictest regulations amongst all the debenture offering types as they are openly offered to the public. The reason being is that the SEC is looking to protect all forms of potential investors regardless of their experience and knowledge about the financial market.
Similarly to the debentures offered to HNW investors, an underwriter is required and the debenture filings must be submitted to the SEC, but the main difference being that a credit rating is required to indicate the level of safety in investing in the company. The borrower must also submit an annual report, financial statement, and report when there is a significant event.
Rights Offering/Preferential Public Offering (RO/PPO)
The first four types of offerings stated are ones used for bonds, however, when it comes to convertible bonds another type of offering is also available, which is the RO/PPO. In this type of offering, the borrower has the ability to offer the convertible bond to all their current shareholders without a credit rating under the assumption that their current shareholders are knowledgeable about the company. This process also does not require an underwriter, but the borrower has to report when there is a significant event. If a convertible bond is released, the rights to subscribe to the convertible bonds will be dependent on the company’s shareholding structure on record date.