Not too long ago, Thai Airways was all but written off. After a staggering loss of more than 141 billion baht and a default on over 71 billion baht in bonds from mismanagement and the pandemic in 2020, the once-proud national airline seemed doomed.
Its path was far from smooth — unlike its slogan, “Smooth as Silk”.
But then, something unexpected happened.
It made a profit.
Within two years, Thai Airways clawed its way back from collapse through a bold debt restructuring plan. The airline’s recovery didn’t just turn heads — it raised a pressing question: if this company could pull through, why can’t others get the same chance?
It’s a rare example of a stressed bond — debt in default or at serious risk — being turned around. That success story should have opened the door for others.
That’s why it might be time for the system to give good, capable issuers — those in trouble but not beyond repair — a real shot at bouncing back. One way is to create more channels for stressed bonds to change hands. Investors who need quick cash could pass them on to buyers who know what they’re doing — experts who can take over, manage the debt, and turn things around.
However, the road of new opportunities for stressed bonds in Thailand remains rocky.
Today, the Thai capital market has two main ways to deal with these troubled debts. Neither is working well, either on paper or in practice.
The first involves amending the law so asset management companies (AMCs) can step in. At present, they can buy bad loans from banks, but not stressed bonds. The Thai Bond Market Association (ThaiBMA) wants to change that by pushing to amend the 1998 Asset Management Company Act to make “bad loans” include stressed bonds.
But the Bank of Thailand, which oversees AMCs, isn’t convinced. It fears that letting AMCs buy stressed bonds could drain resources meant to boost liquidity for banks. Worse, it might trigger wider economic risks, like what happened during the “Tom Yum Kung” crisis — the 1997 Economic Crisis that started in Thailand and expand globally.
The numbers don’t help the case. Data from ThaiBMA shows that in 2023, stressed bonds made up just 0.9% of all outstanding corporate bonds. With such a small slice of the market at stake, there’s little urgency to expand the AMC’s mandate to include stressed bonds, says the central bank.
The second idea is creating a new fund — one that targets stressed bonds directly. The Securities and Exchange Commission (SEC) has already proposed a new set of rules to support the launch of a Stressed Bond Fund (SBF).
The idea is to allow asset management companies to set up mutual funds that focus on investing in stressed bonds. These funds would then be sold to institutional investors and ultra-high-net-worth individuals.
On paper, the stressed bond fund sounds promising. It could open up new business opportunities for fund managers and offer a lifeline to stressed bondholders.
But in reality, many asset management firms aren’t buying it. They say the rules make the fund too hard to run.
One big issue? The fund must invest at least 60% of its average annual net asset value in stressed bonds. In addition, it cannot manage the stress bonds like they can with other assets, making it hard to turn a profit — or manage risk.
Plus, many fund houses say stressed bonds simply aren’t their game. They don’t have the tools. And they worry about damage to their reputation if things go wrong.
There have been calls for the SEC to ease the 60% investment requirement to make stressed bond funds easier to manage and more attractive to fund management companies.
Even so, many still believe asset management firms aren’t the right fit to buy up stressed bonds because they simply don’t have the expertise.
And more importantly, just adding new buyers into the market won’t fix the real problem. It won’t stop the next waves of stressed bonds. It won’t protect small investors who lack the know-how to assess high-risk debt. And it won’t weed out bad actors — issuers who default not because they failed, but because they cheat, never intending to pay back in the first place.
So where do we go from here?
Drawing lessons from overseas markets, the Capital Market Regulatory Guillotine research team at TDRI found hedge funds to be one of the players with expertise to handle stressed bonds.
Unlike mutual funds, hedge funds operate with fewer regulatory constraints. That gives them more room to manoeuvre and take on risks. When markets crash, they often step in as downside players, buying low when bonds go bad, restructuring smartly, and making money when others won’t touch it.
But bringing hedge funds into Thailand’s capital market needs more study. Different funds have different strategies to pick stressed bonds. There is no guarantee they will come in to save every bond on the brink in the market.
The bigger fix lies elsewhere.
Thailand’s bond market needs stronger foundations. Adding new ways to buy up stressed bonds cannot tackle the root problems. Strengthening the bond market itself can.
For a start, create clear indicators to track default rates of high-risk bonds. This would give early warnings before they slide into stressed territory. It is also crucial to have stricter rules about who can buy risky bonds to shield retail investors who lack the know-how from getting burned.
Just as crucial is boosting transparency in how companies raise money through the bond market. This means stricter rules to ensure issuers can repay their debts — and faster punishment for those who cheat.
It’s not just about going after bad actors. It’s about rebuilding investor trust in the entire bond market.
The current ways of dealing with stressed bonds are not good enough. They rely on the wrong players to step in and buy stressed bonds. And they overlook other serious issues that keep fuelling the problem.
What’s needed is real teamwork. Every party involved must come together to create smarter tools — not just to rescue the bonds that can still recover, but also to build a bond market that protects everyday investors, spots trouble early, and stops bad actors before they do damage.
With these measures, the approach to stressed bonds won’t just be reactive — it’ll be truly resilient.
Without them, stories like Thai Airways will remain the exception, not the rule.
Pasinee Rerkpiboon and Phumjit Sri-Udomkajorn are Researchers at TDRI and the Thailand Capital Market Development Fund (CMDF). This commentary first appeared in the Bangkok Post PCL.