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Fundraising for SMEs in Thailand, New Rules
15/08/2024
Until recently, Thailand didn’t offer a lot of options for SMEs to raise funds due to a restrictive regulatory framework and application requirements. Companies were subject to a highly regulated process which must be completed before being able to undertake any fundraising offerings. For example, companies looking to raise funds would need to apply for and receive approval from the SEC.
New amendments from the SEC have made significant changes to this process and made it available to SMEs. These new regulations offer exemptions for the certain private placement offerings and provide a valuable fundraising option for SMEs in Thailand.
This article explores Thailand’s private placement framework, including the key regulations, exemptions, and recent amendments.
Key points
- Private placements allow companies to raise funds and capital by selling securities to a limited number of accredited investors without the extensive regulatory requirements of public offerings.
- Thailand’s regulatory framework for private placements is based on Sections 33 and 65 of the Securities and Exchange Act 1992, providing exemptions from prospectus requirements for offerings to up to 50 investors, offerings up to THB 20 million, offerings to qualified institutional investors, and rights offerings by certain entities.
- Recent amendments proposed by the SEC aim to streamline the approval process, expand the exemption thresholds, enhance transparency and disclosure requirements, and strengthen investor protection measures.
- Private placements present opportunities for small and medium-sized enterprises (SMEs) in Thailand to access alternative financing channels, especially with the proposed increase in the aggregate value threshold for exemptions.
How Can Private Placements Help SMEs in Thailand?
SMEs often face challenges when looking to raise funds and often encounter issues when accessing trying to do so.
Previously SAFE and KISS offerings were not possible in Thailand due to regulations on convertible note issuance for private companies.
A SAFE (Simple Agreement for Future Equity) is an investment vehicle designed to simplify the early stage funding process and reduce the costs associated with the funding round.
Whereas a KISS (Keep It Simple Security) is similar to a convertible note as it earns interest at a certain rate (typically 5%) and has a maturity date of 18 months. After this maturity date has been reached the investor may convert the investment amount plus any interest earned in a newly created series of preferred stock in the issuing company.
However, it was possible to achieve a similar outcome with specially designed corporate structuring (Please see our previous article on SAFE the new regulations from the SEC and their effort to enhance the regulatory framework have introduced an exciting new opportunity for small and medium-sized enterprises (SMEs) in Thailand.
Under the new regulations, Private Placements with the following criteria will not need to receive approval from the SEC Thailand:
- Offerings to No More Than 50 Investors
- Offerings with Aggregate Value Not Exceeding THB 20 Million
By removing the need to seek approval from the SEC, a huge obstacle has been removed for SMEs and a new way to raise funds has become available to them.
What are Private Placements?
Private placements are a way for companies to raise capital by selling securities (stocks, bonds, etc.) to a relatively small number of select investors. Unlike public offerings where securities are sold on open markets, private placements are not subject to some of the same regulator requirements around disclosures and filings.
Some key points about private placements:
– They allow companies to raise funds from accredited investors like wealthy individuals, banks, mutual funds, etc. rather than the general public.
– Regulatory requirements are relaxed compared to public offerings, making them quicker and less costly to execute.
– Investors receive restricted securities that cannot be freely traded on open markets for a holding period.
– Private placements are commonly used by startups and smaller companies unable/unwilling to bear costs of a public offering.
– Accredited investor qualifications are set by regulators to ensure investors are sophisticated enough to understand the elevated risks.
– Used to raise funds for various purposes like financing operations, acquisitions, debt repayment, etc.
The ability to raise capital more efficiently in exchange for taking on more investment risk is a key tradeoff with private placements versus more heavily regulated public offerings.
Does Thailand Have a Regulatory Framework for Private Placements?
Thailand’s Regulatory framework for Private Placements consists of the following:
Sections 33 and 65 of the SEC Act
The foundation of Thailand’s private placement regulations lies in Sections 33 and 65 of the Securities and Exchange Act 1992 (SEC Act), which govern the offering of newly issued shares by public limited companies. These provisions establish the parameters for private placements, outlining the specific exemptions and requirements that issuers must adhere to.
Do Private Placement Transactions Require SEC Approval in Thailand?
The SEC Act outlines four primary exemptions that allow companies to conduct private placements without the need for a full prospectus and SEC approval:
Offerings to No More Than 50 Investors: Companies can offer shares to a maximum of 50 investors within a 12-month period without triggering the prospectus requirement.
Offerings with Aggregate Value Not Exceeding THB 20 Million: Issuers can raise up to THB 20 million (approximately USD 600,000) through private placements within a 12-month period, irrespective of the number of investors.
Offerings to Qualified Institutional Investors: Private placements made exclusively to qualified institutional investors, such as commercial banks, finance companies, and insurance companies, are exempt from the prospectus requirement.
Rights Offerings by Entities Established under Specific Laws: Certain entities, such as the Government Savings Bank and the Bank for Agriculture and Agricultural Cooperatives, can conduct rights offerings without the need for a prospectus.
It is important to note that the calculation of the number of investors and the aggregate value of the offering exclude any transactions with qualified institutional investors, allowing companies to access this investor base without affecting the limits for other private placement exemptions.
What are Qualified Investors?
Qualified investors include the following entities and/or individuals such as Primarily regulated entities like banks, insurance companies, and investment funds, High-Net-Worth Investors and Ultra-Hight-Net-Worth Investors.
High-Net-Worth Investors typically includes individuals who satisfy the following criteria:
- net assets of at least THB 30 million,
- an annual income of at least THB 3 million, or
- gross direct investment in securities and derivatives of at least THB 8 million (or THB 15 million if cash deposits are aggregated).
Ultra-High-Net-Worth Investors typically includes individuals who satisfy the following criteria:
- net assets of at least THB 60 million,
- annual income of at least THB 6 million, or
- gross direct investment in securities and derivatives of at least THB 15 million (or THB 30 million if cash deposits are aggregated).
What is the Process for Conducting a Private Placement Offering Without Having to File a Prospectus ?
For an SME to undertake a Private Placement Offering, the following process must be completed.
Calculating the Offering Size and Pricing: Companies must carefully calculate the aggregate value of the offering and ensure that the proposed price is in compliance with the SEC’s regulations and ensure they are within the exemption limits i.e. Under 50 investors and an aggregate value not exceeding THB 20 Million.
Obtaining Shareholder Approval: If the offer price is below 90% of the market price, the company must seek approval from its shareholders through a special resolution.
Registration: Any Private Placement must be registered with the Office of the SEC and the Office of Small and Medium Enterprises promotions.
Documentation: Issuers must prepare a document which provides a summary of their business operations and a factsheet for investors.
Reporting: A report detailing the results of the sale must be submitted to the SEC within 15 days.
What are the Pricing Considerations for Private Placements?
The SEC Regulations impose additional requirements when the offer price of a private placement is lower than 90% of the “market price” of the company’s existing shares. In such cases, the issuer must:
Disclose specific information in the notice of the shareholders’ meeting, including the objective of the offering, the details of the shares to be issued, and the potential effects on shareholders.
Obtain approval from the shareholders’ meeting through a resolution passed by at least 75% of the votes of the attending shareholders, with no objection from 10% or more of the voting shareholders.
The “market price” can be determined based on the weighted average or closing price of the shares traded on the Stock Exchange of Thailand (SET) over a period of at least 7 consecutive business days, the price determined through a book-building process, or a fair price appraised by a financial advisor approved by the SEC.
What were the Recent Amendments to the Private Placement Regulations?
In a move to enhance the efficiency and accessibility of the private placement framework, the SEC has proposed several key amendments to the regulations, which came into effect on July 1, 2023.
Streamlining the Approval Process
One of the most significant changes is the SEC’s proposal to eliminate the requirement for companies to seek approval from the regulator for private placement offerings, provided that certain investor protection measures are in place. This shift aims to simplify the process and reduce the administrative burden for issuers, while still maintaining adequate safeguards for investors.
Expanding the Exemption Thresholds
The SEC is also considering raising the aggregate value threshold for the private placement exemption from the current THB 20 million (approximately USD 600,000) to a higher limit. This move is expected to provide greater flexibility for companies, particularly small and medium-sized enterprises (SMEs), to raise funds through private placements without the need for a full prospectus.
Enhancing Transparency and Disclosure
While the approval requirement may be relaxed, the SEC is proposing to strengthen the disclosure and transparency obligations for companies conducting private placements. This includes mandating the disclosure of detailed information about the offering, the use of proceeds, and the potential impact on existing shareholders.
Strengthening Investor Protection
To ensure that the interests of investors are safeguarded, the SEC is considering the introduction of additional investor protection measures, such as minimum investment thresholds and suitability assessments for non-institutional investors. These measures aim to strike a balance between facilitating access to private placements and maintaining appropriate investor safeguards.
Raising Funds for Thai Companies from Hong Kong or Singapore?
The ease in the regulations from SEC is welcome but for Thai startups and companies with regional ambitions, offshore jurisdictions such as Hong Kong and Singapore should remain the first choice for fundraising.
There are several attractive reasons why raising funds for Thai companies from Hong Kong or Singapore can be a good option for an SME in Thailand:
- Regulatory Framework: Hong Kong and Singapore are renowned for their highly developed and transparent regulatory environments. These well established frameworks promote confidence in investors. These established legal frameworks also help to streamline the fundraising process and mitigate potential risks for both Thai companies and investors.
- Access to a Larger Pool of Capital: Both Hong Kong and Singapore boast well-established financial markets with a deep pool of investors. This includes international investors, private equity firms, and institutional investors seeking exposure to the growing Thai economy. Compared to Thailand’s domestic market, Hong Kong and Singapore offer a wider reach and potentially larger investment opportunities for Thai companies.
Overall, seeking funds from Hong Kong or Singapore offers Thai companies access to a wider investor base, a more transparent regulatory environment, increased liquidity, and potential for international exposure.
These factors can significantly enhance a Thai company’s fundraising prospects and fuel its growth ambitions. For more information about how Belaws can help your company raise funds in Hong Kong or Singapore, please feel free to send us a message here.
How can Belaws help?
For more information about the fundraising in Thailand, why not talk to one of our experts now?
Please note that this article is for information purposes only and does not constitute legal advice.
Our consultations last for a period of up to 1 hour and are conducted by expert Lawyers who are fluent in English, French and Thai.
Consultations can be hosted via WhatsApp or Video Conferencing software for your convenience. A consultation with one of our legal experts is undoubtedly the best way to get all the information you need and answer any questions you may have about your new business or project.
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Frequently asked questions
What is the Destination Thailand Visa (DTV)?
The DTV is a new visa designed for digital nomads, remote workers, and long-term visitors who want to live and work remotely in Thailand for up to five years.
Is the Destination Thailand Visa (DTV) the same as a digital nomad visa?
Yes, the Destination Thailand Visa (DTV) can be considered a type of digital nomad visa. It’s specifically designed for remote workers and freelancers who want to live and work remotely in Thailand for extended periods. While the term “digital nomad visa” isn’t officially used, the DTV offers the features and flexibility that digital nomads typically look for, such as the ability to work remotely, a long validity period, and the option for multiple entries.
How long can I stay in Thailand with a DTV visa?
You can stay in Thailand for up to 180 days per entry with the DTV visa. You can extend your stay for an additional 180 days once per entry.
How much does the DTV visa cost?
The DTV visa costs 10,000 THB (around $280 USD). There is an additional fee of 10,000 THB to extend your stay for 180 days.
Can I work for a Thai company with a DTV visa?
No, you cannot work for a Thai company with a DTV visa. The visa is strictly for working for companies and clients outside of Thailand.
Can I bring my dependents with a DTV visa?
Yes, the DTV visa allows you to bring your spouse and children as dependents. However, the exact application requirements for dependents are still to be confirmed.
Is the DTV visa the same as a Thailand Elite visa?
No, while both allow extended stays, the DTV is more affordable and caters specifically to remote workers. The Elite visa offers additional perks like VIP services but has higher costs and stricter requirements.
Is DTV visa a Long-term visas in Thailand?
Yes, the DTV visa can be considered a long-term visa in Thailand, with some key limitations. Here’s a breakdown:
- Long-term aspect: The visa itself is valid for five years (long-term compared to standard tourist visas).
- Stay limitations: You can only stay in Thailand for a maximum of 180 days per entry, with a single 180-day extension allowed per year. This means you’ll need to leave and re-enter Thailand to maintain legal status.
So, while the DTV allows for extended stays in Thailand compared to most visas, it’s not continuous residence. It’s best suited for digital nomads who want to spend significant time in Thailand but with breaks in between.
If you wish to stay longer in Thailand you might want to consider other options, such as Thailand Elite or LTR Visa
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