The Washington Independent
The Washington Independent
Thai tax plan unsettles funds

Thai tax plan unsettles funds

December 27, 2020 | Adan Duran

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A proposal in Thailand to implement a 15 percent withholding tax on the profits and capital gains of mutual funds from fixed-income assets raises fears that liquidity could be scaled back. "Right now, this is a big issue in the fixed income industry," a mutual fund manager said.

Parliament adopted the tax proposal about a year ago, but no specifics were given at the time. However, the financial industry recently heard that the revenue department of the Finance Ministry will enforce the reform soon.

A spokesman for the Securities and Exchange Commission told IFR, "The proposed law will become effective 90 days after it is published in the royal gazette, expected in late June or early July."

The justification is to achieve tax neutrality between direct investment in debt instruments.

Investors are subject to a 15% withholding tax, and indirect investment by mutual funds.

In this respect, (the) tax is only subject to returns from fixed income instruments." Many investors instead circumvent the current 15 percent withholding tax on directly held investments by buying mutual funds."

Once the tax is also applied to joint investment, investors will be tempted to purchase bonds directly in order to reduce payments for the management of mutual funds.

The sector is worried about the potential for redemptions from mutual funds. The fear is that money can move from fixed income products to other assets and reduce the large pool of liquidity that in recent months has supported numerous jumbo bond issues.

Mutual funds, which stand to lose clients, have provided the SEC with input on their issues.

The levy, which is very high at 15 percent, will have a significant impact on us, the mutual fund manager said.

The administrator begs to differ. "We expect little impact over the long term in terms of demand from mutual funds, as an indirect investment through a mutual fund provides investors with additional benefits, such as diversification, professional management, and lower switching costs," the SEC spokesman said.

It is not clear whether current mutual funds or new funds set up after the act is passed would be impacted by the levy. Retirement mutual funds owned exclusively by investors of the provident fund would, however, be excluded.

Minor hurdle

25 cents over reoffer. However, that did not last long, with profit-taking in Asian high-yield towards the end of the week leading to the bonds dropping more than a point on Thursday and closing the week bid at 98, according to Tradeweb.

The generally positive backdrop raises hopes that Dalian Wanda may be able to find favor for its proposed offering. The company’s US$600m 2024 bonds, from its last dollar trade printed in 2014, were bid last week at 7.5%, the tightest since May 2018, according to Refinitiv data.

Investors who were extremely cautious last year cited the robust market backdrop as an encouraging sign for highly indebted property issuers seeking offshore funding. “The outlook feels much better,” said an offshore China HY bond investor.

The Fed has really helped restore sentiment, and subsiding concerns over the trade war have brought private banks back to reengage.

I’ve also heard that real money investors have attracted massive inflows to deploy into Asian credit.” Orders for Kaisa’s bonds totaled over US$1.4bn from 107 accounts. Asia bought 93.5% of the Reg S notes and Europe bought 6.5%.

By investor type, fund managers accounted for 82% of the notes, financial institutions 11%, and private banks 7%. The Hong Kong-listed Chinese real estate company intends to use the proceeds for debt refinancing, rather than add to its leverage, again giving investors comfort that the offering will not increase leverage.

Looking ahead, the group will be actively striving to optimize its debt structure through multiple onshore and offshore financing channels to reduce financing costs,” said Kaisa in a statement.

China Citic Bank International, Credit Suisse, Deutsche Bank, and Haitong International were joint global coordinators and joint book-runners, as well as joint lead managers with Founder Securities (Hong Kong) Capital.

Dalian Wanda has hired China Citic Bank International as sole global coordinator, sole bookrunner, and sole lead manager for its Reg S unrated issue

Adan Duran | Adan is a high-energy keynote speaker who encourages audiences to use their focus to pay attention to what matters most at work and in life. His audience members adore his realistic techniques that they can use in their personal and professional lives. As a professional speaker, he has won several awards. His extensive experience in learning, growth, and leading large corporate teams makes his an ideal candidate. Employers recruit Adan because of his actionable techniques for avoiding disruptions, stopping interruptions, prioritizing everyday objectives, and saying no to demands that divert resources away from actual goals and priorities.

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