The Bank of Thailand (BOT) has announced a relaxation of exchange control regulations. Thai life insurance companies, government pension and social security funds, mutual funds, provident funds and “specialised financial institutions” will now be free to invest overseas in certain eligible instruments – namely foreign sovereign bonds, and pre-2003 bonds issued by Thai corporations and state agencies in foreign jurisdictions – subject to the prior approval of the BOT on a case-by-case basis. The Thai central bank has made the changes to soak up “excessive savings” in the local markets. The investment limit is set at US$500 million.
The central bank hopes the changes will encourage the establishment of mutual funds which will invest in sovereign and quasi-sovereign bonds issued and guaranteed by Asian governments and aimed at retail investors. The BOT says it will work with the Securities and Exchange Commission (SEC) to assess the demand and determine the issue size.
The BOT has also relaxed the foreign currency deposit regime; allowed Thai state enterprises to hedge their foreign currency debts for any length of time, abolishing the current twelve month limit; and allowed Thai institutions to issue derivative instruments with returns linked to foreign variables such as foreign exchange rates or foreign assets, though the sale of these derivative instruments will be limited to institutional investors specified by the BOT.