Thai Private Limited Companies are now Permitted to Raise Funds through Convertible Debentures

Up until recently, private limited companies were not allowed to issue convertible debentures due to the prohibition of such under the Civil and Commercial Code of Thailand.¹ However, 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 and medium-sized enterprises (“SME”) are now permitted to issue convertible debentures.²

Seeing the need to facilitate the fundraising process of an SME in order to develop its capabilities in Thailand, the Securities and Exchange Commission (the “SEC”) has made it possible for a private limited company qualified as an SME to issue and offer convertible debentures by way of private placement, through the issuance of the Notification of the Capital Market Supervisory Board No. Tor.Jor. 17/2563 Re: Private Placement Offer of Newly-issued Securities by SMEs; and Notification of the SEC No. Kor.Jor. 3/2563 Re: Exemption from Filing of the Registration Statement for Offering for Sale of Convertible Debentures Issued by SMEs that are Private Limited Companies (collectively, the “Notifications”).

In this Article, we will go through the conditions and process for a private limited company to offer convertible debentures by way of private placement under these Notifications.

1. Qualified Offeror

• In order to be qualified to issue and offer convertible debentures by way of private placement, a private limited company must meet the following criteria:
• (1) Fall under the definition of an SME under the Ministerial Regulation on the Designation of the Characteristics of Small and Medium-sized Enterprises B.E. 2562 (2019)³; and
• (2) Be registered in the Capital Market Fundraising Promotion Project for SMEs with the Office of Small and Medium Enterprises Promotion.
   

2. Qualified 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:

• (1) 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 investor⁴; 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.
• (2) For medium-sized enterprises, the offer may be made specifically to not more than 10 investors with the aggregate value of not more than Baht 20 million, 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 (a) shall not be included in the calculation, regardless of whether or not the offer in item (a) and (b) are made at the same time.
     

3. Duties of the Offering SME

There are several duties which the offering SME must perform in the offering of convertible debentures under the Notifications, as follows:

• (1) Prepare SME Factsheet using the form prescribed by the SEC to provide investors with important information for their investment consideration (e.g. type of business, list of major shareholders, financial information and detail of securities);
• (2) The offering of the newly issued convertible debentures may not be advertised to the public - advertisement to only specific investors is allowed;
• (3) Report the sales of convertible debentures or the conversion of convertible debentures to the SEC Office within 15 days from the closing date of the offer or the date of the conversion of convertible debentures, as the case maybe; and
• (4) In case of the offering of convertible debentures, the offering SME must register the transfer restriction of the convertible debentures with the SEC Office, with the content of the restriction as prescribed under the Notification of the Capital Market Supervisory Board No. Tor.Jor. 17/2563⁵.

Given that the offering SME is a private limited company, apart from the foregoing duties under the Notifications, the SME will also need to satisfy all the general requirements and procedures of the Ministry of Commerce for the issuance of new shares or convertible debentures.
 

4. Summary of the Offering Process for Convertible Debentures Under the Notifications

Below is the summarised process of offering new convertible debentures issued by an SME:

With the relaxation of the rules regarding the issuance of convertible debentures, we may well see that the offering of convertible debentures through private placement becomes another alternative for a private limited company to consider in raising funds for its business operation, as the regulation seems not to be too restrictive for SMEs in general.

• ¹ Section 1229 of the Civil and Commercial Code of Thailand.
• ² Section 37 of the Securities and Exchange Act B.E. 2535 (1992).
• ³ Under this Ministerial Regulation, small and medium-sized enterprises are enterprises with the following characteristics:
  • Small-sized enterprises are:
    • manufacturing enterprises that employ no more than 50 people or have an annual revenue of no more than Baht 100 million; or
    • Service, wholesale or retail enterprises that employ no more than 30 people, or have an annual revenue of no more than Baht 50 million.
  • Medium-sized enterprises are:
    • manufacturing enterprises that employ more than 50 but not exceeding 200 people or have an annual revenue of more than Baht 100 million but not exceeding Baht 500 million;
    • service, wholesale or retail enterprises that employ more than 30 but not exceeding 100 people, or have an annual revenue of more than Baht 50 million but not exceeding Baht 300 million.
• ⁴ Notification of the SEC No. Sor.Jor. 31/2562.
• ⁵ The transfer restriction must provide that the offeror of the convertible debentures shall not accept the registration of any transfer of convertible debentures at any level if such transfer will make such offer unqualified as private placement under Section 6 of the Notification of the Capital Market Supervisory Board No. Tor.Jor. 17/2563, except in the case of a transfer by inheritance or an offering of convertible debentures to investors under Section 6, paragraph (1)(b) or (2) which in the case of the latter, the offeror may accept the registration of the transfer at any level made to investors under Section 6, paragraph (1)(a).

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please do not hesitate to contact any of the authors.