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Articles
New SET Regulations Prohibiting Operations as an Investment Company
The Stock Exchange of Thailand (“SET”) recently amended its regulations1 to prohibit companies listed on both the SET and the Market for Alternative Investment (“mai”) from operating as investment companies, effective as of 1 July 2024. This applies to companies seeking to be listed on the SET or mai, as well as those already listed (“Listed Company”).
i. Definition of Investment Company
According to the definition of investment company outlined in the Notification of the Capital Market Supervisory Board2, a Listed Company is considered to be operating as an investment company if its investments in securities, derivatives or digital assets exceed 40 percent of its total assets, as per the most recent financial statements or consolidated financial statements, in one or more of the following manners:
(1) Investments in shares of another company that is not, nor will become, a subsidiary or associate of the Listed Company, except for investments in companies that cooperate with or support the businesses of the Listed Company; investments in an affiliated company under the same parent company; or investments in a network company that can demonstrate a policy or direction of cooperation or support for mutual operations.
(2) Investments made with the objective of generating returns from capital gains or other returns, excluding investments in government bonds, debt instruments issued by the Ministry of Finance with an unconditional, full guarantee of principal and interest, and units in money market funds or general fixed income funds.
Provided that the calculation of the proportion of such investments by the Listed Company mentioned above includes investments in securities, derivatives or digital assets of its subsidiary company, which is a non-financial institution, as well as the investments made by the Listed Company in shares issued by an associate company that invests in securities, derivatives or digital assets as aforementioned and is engaged as a non-financial institution.
ii. Consequences if the Listed Company Operates as an Investment Company
The SET will determine whether the Listed Company qualifies as an investment company based on its financial statements or consolidated financial statements (if any) ending from 1 August 2024 onwards. If the Listed Company is deemed an investment company, the consequences can be summarised as follows, depending on the scenario:
(a) If the Listed Company is considered an investment company, as determined from its financial statements or consolidated financial statements (if any) ending from 1 August 2024 onwards, the SET will proceed as follows:
- A CC (Caution-Non-compliance) sign will be posted to inform that the Listed Company has performed an event of non-compliance with the prescribed criteria. The Listed Company must rectify this non-compliance within one quarter. Additionally, the Listed Company shall convene a meeting to provide information and a resolution plan for the elimination of such non-compliance to shareholders, investors and concerned parties (“Public Presentation”) within 15 days from the date upon which the CC sign is posted.
- If, after the CC sign has been posted for one quarter, the Listed Company cannot rectify such non-compliance, a SP (Suspension) sign will be posted instead of the CC sign. A Public Presentation shall also be convened every quarter to report on the progress of eliminating such non-compliance.
- If, after the SP sign has been posted for one year, the Listed Company cannot rectify such non-compliance, a NC (Non-Compliance) sign will be additionally posted, and the SET will consider delisting the securities of the Listed Company.
(b) If the Listed Company was previously an investment company and becomes an investment company again within three years from the date upon which it rectified its incompliance, the consequences will be the same as mentioned in (a) above. However, the SET will strictly enforce the measure that once the CC sign is posted, the Listed Company must rectify the non-compliance within one month (not one quarter).
(c) If the Listed Company was previously an investment company, as determined from financial statements ending before 1 August 2024, the SET will proceed as follows:
- A grace period of two years from the due date of submission of financial statements to the SET will be granted, provided that this grace period will end if the Listed Company increases or reduces its proportion of investment so that it is no longer an investment company.
- If, after two years, the Listed Company cannot rectify this non-compliance, the SET will proceed as mentioned in (a) above.
In light of the above, all listed companies and those seeking listing on both the SET and mai should be aware of these SET’s new regulations, which prohibit listed companies from operating as investment companies effective as of 1 July 2024. Compliance with the 40 percent investment threshold is therefore crucial in order to avoid penalties and ensure continued adherence to market rules.
Nuttaros Tangprasitti
Partner
Krid Pongprapaphan
Attorney-at-Law
1Including
(i) Regulation of the Stock Exchange of Thailand Re: Listing of Ordinary Shares of Preferred Shares as Listed Securities (No. 13) B.E. 2567 (2024);
(ii) Regulation of the Stock Exchange of Thailand Re: Listing of Securities, Disclosure of Information and Delisting of Securities in the “Market for Alternative Investment (mai)” (No. 5) B.E. 2567 (2024);
(iii) Regulation of the Stock Exchange of Thailand Re: Measures in case of Events that may Affect the Listed Companies’ Financial Condition and Business Operation (No. 5) B.E. 2567 (2024);
(iv) Regulation of the Stock Exchange of Thailand Re: Rules, Condition and Procedures for Temporary Suspension of Listed Securities Trading (No. 6) B.E. 2567 (2024); and
(v) Regulation of the Stock Exchange of Thailand Re: Delisting of Securities (No. 3) B.E. 2567 (2024)
2Notification of the Capital Market Supervisory Board No. Tor.Jor. 39/2559 Regarding the Requesting and Granting of Permission to Offer Newly Issued Shares
Authors
Nuttaros Tangprasitti specialises in corporate and commercial law. She regularly assists both international and domestic corporate clients (limited liability companies and partnerships, stock corporation in several industries) on the relevant laws of Thailand, which includes foreign direct investment, legal due diligence, M&A and cross-border M&A, joint venture, compliance, banking and finance. In addition to supporting clients on the above and a multitude of different legal formalities, she also has expertise in advising on various investment promotion policies of the Board of Investment (BOI), as well as compliance with foreign business, other laws on salient points for shareholders and joint venture agreements, which includes laws on immigration and foreign work under Thai law. Nuttaros speaks at many seminars and takes an active role in educating the clients on issues relevant to their businesses and her practice areas. She also writes various articles and newsletters on cutting-edge topics in several legal areas, which are widely distributed to existing and potential clients. Nuttaros aims to ensure the lawyers on her team are constantly developing and upgrading their skills, to ensure they meet or exceed the high professional standards of Nishimura & Asahi. She is committed to ensuring that both she and our firm deliver top-quality services to our clients and strong internal support for our colleagues. She recently began drafting a manual on several aspects of Thai law, as part of an “Investment promotion scheme,” and also wrote several newsletters on corporate law, and banking and finance laws. She also recently authored an article on the impact of Tax Reduction for Land and Buildings, which received excellent feedback from our clients, particularly those who are land and building owners. Nuttaros is committed to building a strong and progressive corporate and commercial practice, which also incorporates tax law, by adapting to new ideas in the legal industry.