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February 5, 2025

Exchangeable Bonds and Share Price Pressure: Why Clear Disclosure Matters

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Exchangeable bonds (EBs) are uncommon financial instruments in the Thai market and differ from convertible bonds, which allow conversion into newly issued shares. EBs, on the other hand, are an alternative way of raising funds but are not defined under Thai rules and are typically not offered in Thailand. Instead, a major shareholder of a Thai-listed company uses an offshore vehicle company to issue EBs backed by its trading shares in a Thai-listed company. The exchange price usually includes a premium over the reference price. This method enables the major shareholder to monetize holdings efficiently while maintaining flexibility in financial management through funds raised without relying on traditional loans.

Share Price Impact

In one recent case involving the issuance of EBs backed by Thai listed shares, the share price of the underlying company got hit significantly. Some critics may view EB issuance as harmful to minority investors while providing advantages to the EB issuer because the potential conversion can lead to an increase in the supply of the company’s shares in the market, since the bondholders converting EBs often sell those shares in the market. This may exert downward pressure on the share price due to the higher supply of shares available for trading. Meanwhile, the advantages of issuing EBs seem to be fundraising at a lower cost for the major shareholders to the detriment of minority investors in a listed company. The anticipation regarding impending conversions can also affect investor sentiment, leading to increased volatility in the share price.

Some may view the issuance of EBs as having a positive side since this typically offers a higher conversion price compared to the current trading price, but whether it will undergo future growth would still largely depend on the market’s confidence in the stock price, and disclosures play a crucial role in such determinations.

Disclosures

Disclosures by a listed company regarding EB issuance can help address investor concerns by clarifying how funds will be utilized, potentially benefiting the listed company or the entire group. This transparency can support the company’s growth, and in some instances, clear communication and disclosures about EB issuance have had limited impact on the trading price.

An unclear disclosure by a listed company can lead to unintended market perceptions, potentially impacting share prices and market sentiment, especially when mixed with unrelated incidents. Providing complete and clear disclosures can help prevent undue media outcry and alleviate investor concerns.

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