According to the Ministry of Finance, for Thailand’s economy to achieve sustainable and stable long-term growth, attention should be focused on three key areas:

• infrastructure development, including sustainable energy use, digital investments and regional transportation connectivity;
• skills development to prepare the workforce for the global economy; and
• maintaining fiscal stability through prudent financial management.

Additionally, it is important to closely monitor key factors that could impact Thailand’s economy, such as global geopolitical conflicts, the political and economic situation of trading partners, global financial market volatility and so forth, which could affect Thai exports and the tourism industry. In June 2024, the Monetary Policy Committee decided to maintain the policy interest rate at 2.5% per annum, which has been the rate since late 2023. The Thai economy is expected to grow by 2.6% in 2024 and 3.0% in 2025. This year, growth is driven by strong domestic demand, recovery in the tourism sector and increased government spending. However, export growth remains slow due to structural challenges and declining competitiveness, with the automotive sector being particularly affected by reduced foreign demand. The outlook for exports and manufacturing, and the impact of government stimulus measures, should be monitored in the latter half of the year. The Monetary Policy Committee has expressed some concern about the high level of household debt and supports aligning credit growth with debt reduction to enhance financial stability. It backs the measures of the Bank of Thailand (BOT) to ensure lending matches borrowers’ repayment capabilities and supports debt restructuring. The Committee also emphasises the importance of improving credit access for SMEs through targeted measures such as credit guarantee schemes, which are essential for economic growth.

Geopolitical issues are considered one of the key risk factors that could impact both the global and Thai economy, particularly the ongoing conflicts in the Middle East along with the prolonged conflict between Russia and Ukraine. However, the Fiscal Policy Office (FPO) expects that the conflict between Israel and Iran will have a limited impact on the Thai economy, given that the conflict remains relatively contained. This assessment is based on the expectation that the conflict will remain contained and that diplomatic efforts will improve the situation. Key areas of potential impact include the following.

• Financial and capital markets: The conflict has caused increased volatility in both global and Thai markets, leading to declines in major stock indices and a stronger US dollar as investors seek safer assets. The Thai stock market also saw a decline on 17 April 2024, following the conflict.
• Commodity prices: Given that Iran contributes only 1.5% to global crude oil exports, the conflict’s effect on oil prices is not expected to be significant if it remains contained.
• International trade: As Thailand’s trade with Israel and Iran is minimal, the imports from these countries are commensurately small, reducing the overall impact on Thailand’s trade.
• Tourism: Visitors from Israel and Iran represent just 1.0% of all foreign tourists in Thailand, contributing 1.9% to foreign tourism revenue. Thus, the conflict is unlikely to significantly affect the tourism sector.
• Investment: Direct investment from Iran in Thailand is nominal, and investments from the broader Middle East region are also nominal. This limits the potential impact on Thailand’s investment climate.

Recently, the Securities and Exchange Commission (SEC) of Thailand enhanced its supervision over high-yield bonds to strengthen payment protections and restore investors’ confidence following recent defaults by leading corporates and a major accounting scandal affecting speculative debt markets. The SEC is now actively reaching out to companies in the first instance if there are any potential issues likely to affect their capacity to repay high-yield debts, marking a significant change from its past practice. Interest in the high-yield debt market has shown a decline due to payment delays and corporate scandals, prompting calls for more stringent market supervision and monitoring. Financial authorities are prepared to take the necessary steps to address distressed debts, according to the Finance Ministry. Investors have become more cautious when deciding to invest in bonds. Bonds with high credit ratings – issued by companies with strong operational histories and stable financial positions – are likely to meet sales targets. However, bonds with lower credit ratings, particularly those issued by medium and small-sized companies, may struggle to achieve their targets. This reflects the trend of investors being more discerning in their investment choices.

Traditional financial institutions, such as commercial banks and specialised financial institutions, continue to be the major credit providers in Thailand, especially when it comes to financing large corporate transactions. Non-banks and start-ups have become more prominent in the market for typical loans to individuals, such as personal loans and nano-finance. By having a more approachable method for accessing loans with a less complicated process, such alternative credit providers can be a more convenient option for individuals and retail customers.

Digital Factoring Ecosystem

In the past, SMEs were generally unable to access factoring transactions because factoring business operators were concerned about the unreliability of invoices submitted by customers and their requests for double financing on the basis of the same invoices. Using central web services (CWS) technology, BOT launched a platform for digital factoring. By using the central database of the platform, it is possible to verify the invoices of customers to prevent double financing issues. In recent months, the platform has built confidence among factoring business operators, more of whom have agreed to enter into factoring transactions; this makes factoring a more readily accessible means of obtaining funding for SMEs.

Peer-to-Peer (P2P) Lending

Lending by an individual or a juristic entity to an individual can be done on a licensed electronic P2P lending platform. The platform operator will act as an intermediary by matching lending and borrowing activities and arranging the execution of loan agreements. Furthermore, the platform operator will have to assess the borrower’s creditworthiness and client suitability, as well as procure the funds through a custodian or an escrow account.

This method of lending excludes the administrative costs that normal financial institutions have to bear, and the platform operator will be able to eliminate significant costs normally charged to the borrower for similar services. Using this financing technique not only allows the borrower to access funds via a simpler and faster method, but also offers investors an alternative way to manage excess funds in addition to saving.

Digital Lending

Digital lending is a financing technique that allows licensed personal loan business operators to employ digital technology and alternative data as part of their credit risk analysis. It helps customers who may not have a regular income or sufficient assets to serve as collateral for a loan but may have other online information that proves their ability to repay a loan to access a source of funds. Business operators are urged to proceed with the borrowing and repayment processes through an electronic platform, such as wire transfer or electronic money, to create a digital footprint that will be useful for customers when it comes to future financial products and services.

Crowdfunding

Crowdfunding, either by way of equity or debt, can be performed through a licensed funding portal. A borrower or an issuer will have to submit a business plan to the funding portal, which conducts a screening process and discloses relevant information online. Investors will then consider the published information, and if they decide to make an investment to the business, they will pay a subscription fee that will be held by an escrow agent. The borrower will then issue shares or debentures to investors and will be required to provide periodic updates on the progress of the business.

Holding Company (HoldCo)

A HoldCo normally generates income through equity ownership in other companies without engaging in its own operational activities. This arrangement establishes legal separation between the operating company’s assets and its owners, decreasing the owners’ liability in case the operating company faces financial difficulties. HoldCo financing involves the offering of loans to a HoldCo positioned above an operating company. This would typically be an arrangement used in infrastructure and energy project financing, particularly where HoldCos have more than one project.

BOT and SEC, as co-chairs of the working group on defining and categorising sustainable economic activities, held a public consultation from December 2022 to January 2023 on the draft of Thailand’s Taxonomy Phase 1. This phase focuses on categorising economic activities in the energy and transportation sectors, which are major greenhouse gas emitters. The goal is to establish a unified standard for evaluating and setting environmental business targets, providing a reference for accessing financial services and tools that support the transition to environmental sustainability. Thailand’s Taxonomy Phase 2 will focus on the manufacturing sector, agriculture sector, real estate and construction sectors, and waste management sector.

Recently, the Thai government announced a plan to issue up to USD1 billion in Baht-denominated sustainability-linked bonds (SLBs) in the fourth quarter of 2024, marking the first such offering from an Asian government. These bonds will help to finance the government’s budget deficit whilst associated with programs aimed at reducing carbon emissions.

Licensed commercial banks (Thai commercial banks, subsidiaries of foreign commercial banks and branches of foreign commercial banks) are authorised to provide financing to companies. In the case of non-banks, specific types of financing (eg, personal loans, nano-finance for occupational purposes and provincial retail loans (pico finance)) are regulated and subject to licensing requirements. Licence applications can be submitted to BOT or the Ministry of Finance for consideration and approval. Non-banks who conduct business that is not regulated, and who are foreigners under the Foreign Business Operation Act, are also required to obtain a foreign business licence.

In general, foreign lenders are not restricted from providing loans to Thai residents, except when the loans are provided to individuals and can be classified as personal loans, nano-loans or pico loans. In such cases, loans from foreign lenders are subject to BOT’s regulations.

There are no substantial restrictions on the provision of security or guarantees to foreign lenders, except for a provision of security under the Business Security Act B.E. 2558 (2015) to a foreign lender. In these cases, a foreign lender that is a commercial bank is required to grant a loan in syndication with Thai banks to be eligible to have security under this law (see 6.1 Enforcement of Collateral by Secured Lenders).

The purchase and remittance of foreign exchange are subject to the approval of authorised agents, usually commercial banks, for all bona fide transactions that do not fall into the restricted purposes outlined under the Exchange Control Act, B.E. 2485 (1942), as amended.

If a transaction falls within such restricted purposes, specific approval from BOT must be obtained. In any case, the remittance and payment made under a loan or guarantee, and any other associated interest or fees, are not categorised as restricted purposes; therefore, a specific approval from BOT is not required.

While BOT’s approvals are granted on a case-by-case basis, such approvals have been routinely granted for all bona fide transactions, provided that the relevant supporting documents/agreements to prove a legitimate commercial purpose are submitted to BOT together with other supporting documents, as required by BOT.

There are no general laws imposing a restriction on the borrower’s use of proceeds from loans or any debt securities. Nevertheless, a borrower is prohibited from using the proceeds in connection with illegal activities.

In most loan agreements, the purposes of the loan proceeds are specified and any deviation from such purposes would constitute a default, giving the lender the right to terminate the loan agreement.

Generally, the creation of a trust by a will or by a juristic act is prohibited under Section 1686 of the Thai Civil and Commercial Code. However, a trust can be established for the purposes of securities, securitisation and capital market transactions under the Trust for Transaction in Capital Markets Act B.E. 2550 (2007). Accordingly, the concept of a trust established for general purposes is not recognised under Thai law, and the obligations of a person to hold anything in trust for any other person may not be enforceable, although analogous rights are recognised in certain transactions.

However, such unenforceability would not in itself affect the recognition of the validity of the particular transaction to which the person acting as trustee was a party.

Notwithstanding the foregoing, an appointment of an agent is commonplace in financing transactions in Thailand, and the concept of the principal-agent relationship is recognised under Thai law. In a syndicated loan, lenders usually appoint a security agent among themselves to hold security for and on behalf of a lender. There is no specific licensing requirement for acting as a security agent. However, mortgage registration does not allow the concept of a security agent; thus, each lender must enter into a mortgage agreement as a mortgagee.

Assignment

A loan transfer by way of the assignment of rights is usually made when loan disbursements have already been made in full, and no commitments are available under the loan agreement. As a result, only the right to receive loan repayments will be transferred.

An assignment of rights of the existing lender to the new lender must be made in writing. For an assignment to be valid against the borrower, a written notice must be given, or written consent must be obtained from the borrower. Following the assignment, the rights over the mortgage, pledge and business security agreement (BSA) existing on the loan, and the rights arising from a guarantee established for the loan, are automatically transferred to the new lender provided that the transfer of the mortgage and BSA is registered with the appropriate authorities. Nevertheless, the security interest over an assignment of rights under the project agreements, insurances, etc, which are not considered preferential rights under the law, will not be automatically assigned upon the assignment of the loan. Therefore, such assignment must be executed between the new lender and the borrower to ensure validity.

Although a guarantee or any security interests created by a third party will be automatically assigned to the new lender, it is advisable that the notice of assignment be delivered to the relevant guarantor and a third-party security provider to ensure that the assignment is duly acknowledged.

Novation

Where the loan has not been fully disbursed, assignment of the loan may not be a viable option since the assignment only transfers the rights of the original lender to the new lender, and not the obligations. In this situation, a novation should be executed to ensure that the new lender remains liable for any further disbursements of the loan.

A transfer of rights and obligations of the existing lender to the new lender may be executed by way of novation where a form of tripartite agreement is required to be entered into among the existing lender, the new lender and the borrower. Additionally, the parties may agree to transfer the security granted to the existing lender under the existing loan agreement to the new lender, provided that, if the security is provided by a third party, consent from such third party is obtained.

A loan participation, where the existing lender wholly or partially sell its interests in a loan to another lender, is also a viable option for a transfer of the loan, provided that the commercial bank assigns the loan to a financial institution that meets the requirements set out by BOT.

Under Thai law, debt buybacks by the borrower result in the loan’s rights and obligations being vested in the same entity, and the loan will be extinguished. Even though the rights and obligations under the loan can be merged within the same entity, debt buyback arrangements are not commonly used in Thailand. Often, lenders and borrowers will enter into discussions to restructure and reduce the amount of debt to be repaid by the borrower should there be a situation where the borrower is unable to pay the debt in full.

For a debt buyback by a third party – ie, a sponsor, there is no specific law or regulation explicitly prohibiting the sponsor from buying back the borrower’s debts. Sponsors are legally permitted to repay the loan to the lenders (or purchase debt or claim rights against the borrower) and then subrogate the lenders’ rights as creditors. However, loan agreements can specify that the transferee of the lender must appear on an approved list of banks, thus making the debt buyback infeasible for the sponsor.

In public acquisition transactions, if an acquiror wishes to acquire shares of a target company that reach certain thresholds as specified by law, the acquiror must make a tender offer for all the issued shares of the target company. The offeror is required to indicate the source of funding in its tender offer documents as a method of demonstrating its ability to fund the tender. If the source of funds includes funds secured by debt financing from a financial institution, a commitment letter issued by the financial institution must be submitted as a supporting document along with the tender offer documents, which are to be publicly filed with SEC.

There is no specific requirement for details or minimum particulars in the commitment letter; however, in practice, commitment amounts and an effective period for such commitment are specified. Loan agreements for certain funds can be executed thereafter with certain condition precedent documents set forth by the lenders, which are sometimes subject to lenders’ satisfaction.

Discontinuation of the Bangkok Interbank Offered Rate (BIBOR)

As a consequence of the London Interbank Offered Rate (LIBOR) cessation on 30 June 2023, and to promote transactions-based, over-quotation-based interest rates, early this year, BOT requested that the market discontinue the use of BIBOR, a quotation-based interest rate, after 2025. BOT will discontinue the publication of BIBOR after 2027. BOT recommended that any agreements utilising BIBOR be amended to adopt an alternative interest rate, such as the Thai overnight repurchase rate (THOR).

The interest rate charged on a loan shall not exceed 15% per year in general. According to BOT’s notification on practices regarding interest, discounts, service charges and penalties for commercial banks, each commercial bank is entitled to announce its own maximum interest rate to be charged to its customers for Thai baht commercial loans above a cap of 15% per annum. The charging of interest on a foreign loan provided by banks or financial institutions registered and located in foreign countries is limited to 20% per annum.

Fees, penalties and other payments under a loan agreement that are in the nature of interest may be regarded as additional interest. If interest is charged at a rate in excess of the applicable ceiling, the entire interest charged may be held to be void and unenforceable.

Default Interest

The default interest rate can be agreed at a higher rate than that of the loan interest rate. However, the Thai courts can classify exorbitant default interest rates as penalties. The courts can use their discretion to reduce the default interest rate if they take the view that such default interest rate is disproportionately high.

In addition, the newly amended Thai Civil and Commercial Code prescribes that where debts are due in instalments, the default interest rate shall be calculated on the due but unpaid principal amount of such default instalment. Thus, default interest can be charged only on the principal amount of each instalment.

Under the Thai Civil and Commercial Code, interest on interest can be charged after it is overdue for more than one year, provided that the lender and the borrower have agreed in writing in advance, and that the entire debt shall be charged interest at a specified rate. In respect of financial institutions and non-banks under the supervision of BOT, in 2022, BOT issued a notification regarding practices for the calculation of interest for entities under its supervision meaning that, except for certain transactions, they may not accumulate the interest, service charges, penalties and expenses to a loan’s outstanding balance to recalculate the interest and penalties.

Related-Party Transaction (RPTs)

Under the Securities and Exchange Commission Act B.E. 2535 (1992) and relevant SEC regulations, listed companies may enter into certain transactions with a related party upon approval by the board of directors or the shareholders, as the case may be. Disclosure of such a transaction must be made to the Stock Exchange of Thailand. A financial contract that may fall within the scope of an RPT may include, among others, a guarantee agreement where a listed company agrees to guarantee the indebtedness of its affiliates or vice versa. In any case, disclosure is only required when the transaction value reaches the applicable threshold when compared to the net tangible assets of the relevant listed company as specified in relevant SEC regulations.

Where a disclosure is required to be made, the details that follow in relation to the agreement must be provided to the Stock Exchange of Thailand:

• date and relevant parties to the agreement;
• general explanation regarding the nature of the offer or receipt of financial assistance relating to the decision to enter into the transaction; and
• the total value and criteria used for determining the transaction’s total value.

It is important to note that the disclosure requirement is not applicable where the listed company holds at least 90% of the total share capital of the affiliate.

Reporting Obligations in Relation to Anti-Money Laundering Laws

Under the Anti-Money Laundering Act B.E. 2542 (1999), Thai financial institutions are required to report to the Anti-Money Laundering Office (AMLO) a transaction that involves real property and machinery worth more than THB5,000,000. In respect of project financing transactions, execution of mortgage agreements (land/building/machinery) is usually required to be reported to AMLO, since the mortgage amount or transaction value would typically be the amount of the loan facility, which would be higher than THB5,000,000.

Upon entering into a mortgage agreement, financial institutions, including commercial banks, finance companies, securities companies, insurance companies and other business related to finance, are required to report to AMLO the following information:

• transaction type;
• date and relevant parties to the agreement;
• details of the property; and
• value of the transaction (mortgage amount).

Interest, other fees, expenses, charges, penalties, and other payments made to an offshore lender are generally subject to a withholding tax of 15%. However, the withholding tax may be reduced or waived by virtue of a tax treaty between Thailand and the resident country of the relevant lender.

The payment of stamp duty on the following financing documents is a condition of entry into civil proceedings before the Thai courts:

• loan agreements – stamp duty of THB1 for every THB2,000 or a fraction of the total amount of the loan, but not exceeding THB10,000;
• guarantee agreements – stamp duty of THB10 of the total guaranteed amount exceeding THB10,000;
• pledge agreements – stamp duty of THB1 for every THB2,000 or a fraction of the total amount of the loan, without limitation (note that if the loan agreement, which is a principal obligation, has been affixed with stamp duties, the relevant pledge agreements are not required to be affixed with the stamp duty); and
• nominal duty on duplicates of dutiable instruments.

Stamp duties are required to be affixed within 30 days of bringing the document into Thailand if it is signed abroad, or within 15 days if it is signed in Thailand; otherwise, penalties will be applied for the late stamping. Furthermore, a dutiable instrument without a stamp cannot be admitted as evidence in Thai courts.

Additionally, the following fees apply to the registration of certain securities under Thai law with the relevant government body:

• mortgage registration for land and/or building mortgage – 1% of the mortgage amount but not exceeding THB200,000;
• machinery mortgage registration – THB1 per THB1,000 of the mortgage amount but not exceeding THB120,000; and
• BSA registration – 0.1% of the secured amount but not exceeding THB1,000, except for the registration of security over land, where the fee shall be equivalent to the land mortgage registration fee.

There are generally no other tax concerns for foreign lenders apart from withholding tax, as mentioned in 4.1 Withholding Tax.

It should be noted that the tax treatment does not differ between money centre banks and non-money centre banks, or any foreign financial institutional lenders, under the Revenue Code. However, certain international financial organisations, such as the World Bank, International Finance Corporation (IFC) and Asian Development Bank (ADB), are not subject to withholding tax liabilities on interest, other fees, expenses, charges, penalties and other payments. This is provided that, in such particular transactions, the relevant international financial organisations do not operate in a commercial setting or with the purpose of seeking benefit in Thailand.

In Thailand, assets that can be provided as collateral are generally real estate, movable property, shares and claims. Security executed not in accordance with the formalities and perfection requirements may be considered invalid, void, or unenforceable, as the case may be.

Real Estate

A typical form of security interest over land and/or buildings is a mortgage. A mortgage agreement must be registered with the competent official at the relevant land offices where such land/building is situated; otherwise, the mortgage is invalid. As mentioned in 3.5 Agent and Trust Concepts, since Thai law does not recognise the concept of trust, the mortgage agreement must be entered into between the mortgagor and the lenders or secured parties as mortgagees, and not by a security trustee, to ensure each lender’s preferential rights.

It is important to note that Thai law prohibits a third-party mortgagor from being liable for the remaining balance of a secured obligation when the mortgage is enforced, should the proceeds from enforcement not cover the amount due. Additionally, Thai law also prohibits a third-party mortgagor from acting as a guarantor while also acting as a mortgagor for the same underlying obligation.

Movable Properties

Pledges and BSAs over property are the most common form of security over movable property. Pledges require the actual delivery of the pledged property to the pledgee; if the property is returned to the pledgor for any reason, the pledge is legally extinguished.

The Business Security Act allows the creation of security for movable property without the physical delivery of such assets to the security receiver. A BSA must be made in writing and registered via an online system with the Secured Transactions Registry Division. Due to this special feature of no actual delivery requirement, the use of the BSA over property prevails over the use of pledge of property in corporate loans.

Under the Business Security Act, the security receiver must be a financial institution, or any other person as prescribed under relevant Ministerial Regulations, including a foreign commercial bank that provides facilities in syndication with a financial institution as defined in the Financial Institutions Businesses Act B.E. 2551 (2008) – eg, Thai commercial banks. Under the Business Security Act, a foreign commercial bank that intends to be a security receiver must serve written notice of its intention thereof to the Department of Business Development, Ministry of Commerce with supporting documents proving that it is a commercial bank under the relevant laws in the jurisdiction of its registration/incorporation.

Shares

Shares are considered rights represented in an instrument and can be secured as collateral by way of a pledge. When pledging shares in a company, in addition to the physical delivery of the share certificates to the pledgee, a record of the pledge along with the name and address of the pledgee must be registered in the share register book of the company to ensure the pledge is valid against the company and third party.

Claims and Other Assets

Certain claims, such as deposits in bank accounts, rights to receive proceeds, rights under agreements and intellectual property, can be provided as collateral under a BSA.

In a project finance transaction, it is also common practice for a borrower to agree in advance to conditionally assign its rights under project-related contracts, rights to receive proceeds under insurance policies, etc, for the purpose of providing collateral to secure loan obligations in favour of a lender. However, the assignee will not be considered a secured creditor in bankruptcy proceedings.

An assignment of a right is not valid unless it is made in writing, and such assignment can be set up against the debtor or third persons if written notice thereof has been given to the debtor, or if the debtor has consented in writing to the assignment.

Rights Over Leasehold Assets

The Rights Over Leasehold Asset Act B.E. 2562 (2019) introduced a new type of legal interest over land and/or buildings that is capable of mortgage registration, namely, the right over a leasehold asset (Sap-Ing-Sith). Rights over a leasehold asset are similar to leasehold rights, whereby the owner of an immovable property registers with the relevant land office a right over a leasehold asset or the right to use the immovable property in favour of another person (the “Leasehold Right Holder”). The maximum duration of the registered right over a leasehold asset is 30 years. Rights over a leasehold asset can only be registered over land represented by a title deed, land with buildings constructed on land represented by a title deed, and condominium units under the Condominium Act B.E. 2522 (1979).

Traditionally, a person who could be a mortgagor in relation to real estate was limited to the owner of the land and/or building. However, pursuant to the Rights over Leasehold Asset Act, a Leasehold Right Holder is able to mortgage its rights over the immovable property that has been registered as a right over a leasehold asset.

Note that, in contrast to the limitation of a foreigner to hold ownership of land, a foreigner is allowed to be a Leasehold Right Holder and can subsequently mortgage such right in favour of the mortgagee.

There is no concept of a floating charge in Thailand. The closest available security option is business security, which can cover the present and future assets of the security provider without requiring it to deliver any of its assets to the security receiver.

Business security can be created over a whole business.

However, the key difference between floating charges and security over the whole business under the Business Security Act is the Thai legal requirement to register all assets secured under a BSA over the whole business, and the requirement to notify the security receiver of any changes in the details of the secured assets.

Contrary to the floating charge concept, where the specification of a class of asset charged to the chargee is required only once and re-registration for future assets acquired by the chargor – or assets disposed of in the ordinary course of business – is not required, the Business Security Act requires that security providers notify the security receiver when they acquire new assets so that the registration of the security can be amended.

Nevertheless, a party may agree to set a threshold of changes that require notification; for example, the duty to notify will apply only if inventory increases or decreases by 20%. As a result of this stringent requirement and the uncertainty of enforcement, to date, a BSA over a whole business has rarely been used in Thailand, especially in relation to large commercial loans or project-financing transactions.

There is no restriction in giving downstream, upstream and cross-stream guarantees under Thai law, and the arrangement can be structured to allow one company to secure another company’s debt. A guarantee provided by publicly listed companies or their subsidiaries to secure the debt of another company that shares the same controlling shareholder(s) or person(s) with management power is considered a related-party transaction that may require approval from the board of directors or shareholders, and may be subject to reporting requirements (depending on the size of the transaction).

There are no specific restrictions on the target to grant guarantees, security or financial assistance for the acquisition of its own shares. However, if the provision of a guarantee, security or financial assistance by the target for the acquisition of the target’s shares is considered a related-party transaction, certain requirements must be met as outlined in 5.3 Downstream, Upstream and Cross-Stream Guaranties.

Requirement of a Licence

A foreign entity (which includes a Thai-incorporated entity for which the shareholding structure is majority or wholly owned by a foreign entity) is considered a “foreigner” under the Foreign Business Operation Act B.E. 2542 (1999). That foreign entity is restricted from providing guarantees or any security to secure a third party’s debts, since provisions of a guarantee or security to secure a third party’s debt are considered as provision of services under Annex 3 of the Foreign Business Operation Act. In such cases, a foreigner is required to obtain a foreign business operation licence before providing a guarantee or any form of security in Thailand. A foreign business licence is to be granted for each transaction individually, and the foreigner is required to apply for the licence each time it is required to provide security or a guarantee.

Thai Guarantee Law Limitations

As a result of the amendment to the Thai Civil and Commercial Code, the Thai guarantee law imposes certain limitations on the provision of guarantees, such as:

• an individual guarantor is prohibited from the provision of guarantees as a primary debtor;
• in the event of an extension of time granted by the creditor to the debtor for the secured obligation, the guarantor’s obligation shall be extinguished, unless the guarantor consents to such extension of time at the time of or after such extension;
• in the event that the creditor reduces the amount of the secured obligation, interest, compensation or any other charges, and if the payment after deduction has been made either by the debtor and/or the guarantor, the guarantor shall be free from the guarantee; and
• when a debtor defaults, the creditor must deliver a written notice to the guarantor within 60 days from the date that the debtor defaults. If the creditor fails to do so, the guarantor is released from interests, compensation and any other charges relating to such obligation after the 60-day period has ended.

Any provision in the guarantee agreement contrary to the guarantee law limitations will be rendered void and unenforceable.

A full repayment of a secured obligation (a loan) will legally extinguish all ancillary obligations or security agreements related to such secured obligation.

If the security is registered with a competent official – ie, security created under a mortgage and BSA, the registration of release shall be made to reflect the actual extinguishment of the underlying loan agreement. For other types of security, a notice of release is usually served to the relevant obligors, and, in case of a pledge, the pledged property shall be returned to the pledgor.

With respect to security that requires registration (ie, a mortgage and BSA), the security interest that was registered the earliest has priority over interests registered later. Assets subject to a mortgage can subsequently be collateralised under the BSA and vice versa. However, an asset subject to collateral under the BSA cannot subsequently be pledged; otherwise, the pledge will be invalid.

In bankruptcy proceedings, under Section 96 (1) of the Bankruptcy Act B.E. 2485 (1942), a secured creditor who has preferential rights over an asset may waive its priority by agreeing to relinquish such asset given as security for the benefit of all creditors and may apply for repayment of the debt in full. Nevertheless, it is uncertain whether the secured creditor can contractually waive its preferential rights over the secured assets prior to bankruptcy proceedings.

With respect to unsecured debt, contractual and structural subordination are feasible in Thailand. In bankruptcy proceedings, a contractual subordination provision is recognised under Section 130 bis of the Bankruptcy Act and, as a result, the subordinated debt shall be payable after all other unsecured debts are repaid in full.

There is no concept of priming liens in Thailand. In general, security interest duly created in favour of a lender will give such lender preferential rights over other creditors that cannot be primed by any other lenders. Where the security is created in favour of multiple lenders, the security interest would rank according to the time of registration, as mentioned in 5.7 Rules Governing the Priority of Competing Security Interests.

However, rights to enforce the security of a secured creditor may be subject to the right of retention of other creditors. A right of retention allows a person who possesses another’s property to retain it until an obligation relating to the property is performed. The right may be exercised against the whole of the property until the obligation is completely fulfilled. Certain conditions must be satisfied for the right to arise:

• there must be an obligation owed to the possessor, by the borrower or the property owner, which has become due;
• in the case of insolvency of the borrower or the property owner, the right may be exercised even if the debt has not become due;
• the obligation must arise in relation to the property itself; and
• the possession must have commenced lawfully.

As a result, a person who has the right of retention is legally entitled to withhold the secured property, and may not be required to deliver such property to the secured creditor until the obligations owed to them by the borrower or the property owner are duly performed. In any case, a person who has the right of retention is not entitled to enforce the property and apply the proceeds toward the performance of the borrower’s – or the property owner’s – obligation in the same manner that a mortgagee, a pledgee or secured creditors may have.

Further, in respect of real property, where a debtor owes any of the following duly registered obligations, a creditor of such obligations shall have preferential rights over the mortgagee:

• preservation of real property; or
• hire of work in relation to property situated on real property.

In other words, a creditor of debt obligations in relation to the above-mentioned transactions owed by the landowner shall have priority over a mortgagee of the same land.

In addition, in rehabilitation proceedings, a lender who has provided financial support to the borrower, during the period when the borrower was undergoing rehabilitation proceedings, is not required to submit an application for debt repayment under the rehabilitation proceedings and shall not be subject to the repayment terms under the rehabilitation plan (not subject to any debt hair-cut). Instead, such lender may enforce its loan in accordance with relevant terms in the financing documents, subject to automatic stay or moratorium. Although new lenders may have priority over other unsecured creditors who have applied for debt repayment, the security interest provided in favour of existing creditors cannot be prejudiced in any manner.

Normally, collateral enforcement is triggered by an event of default under the relevant loan agreement.

Security enforcement typically involves the following methods:

• public auction through legal procedures with a court order;
• out-of-court public auction; and
• foreclosure.

When enforcing a mortgage or BSA, public auctions through legal procedures with a court order are usually required, except when the mortgagor or the security provider consents to the enforcement of the secured asset; in this case, an out-of-court public auction may be conducted.

For enforcement of a pledge, the pledgee may enforce the pledged property by a public auction without court procedures.

The foreclosure of secured assets is a viable option; however, it is uncommon in practice due to the requirement that the debtor have outstanding interest payments for at least five years and that the value of the secured asset not exceed the outstanding unpaid debt. If there is an agreement in advance allowing the lender to dispose of secured assets contrary to the foregoing, such as a private execution agreement, the agreement is invalid.

Under a BSA, there are also special provisions for the enforcement of deposit claims and security over the whole business. Whenever the security receiver of a deposit claim is a financial institution, the enforcement procedures can be carried out immediately through direct settlement for those deposits, followed by a subsequent notice (without obtaining consent) to the security provider. For the whole business collateral, a third-party security enforcer appointed in advance by the parties will be responsible for enforcing and disposing of the whole business.

The choice of foreign law agreed upon by the parties as the governing law of the loan will be recognised and applied by Thai courts, but only to the extent that such law is proven to the satisfaction of a Thai court (satisfaction is within the discretion of the court) and is not considered contrary to Thailand’s public order or good morals by the court. The scope of a court’s discretion on public order or good morals has not yet been definitively established.

A provision that allows the courts of a foreign jurisdiction to have exclusive jurisdiction to settle any dispute may not be enforceable in Thailand. However, Thai law is silent on the effect of irrevocable submission to the jurisdiction of a foreign court, waivers concerning objection to venue or the appointment of agents for service of process for the purposes of proceedings before such courts. There is no precedent case under Thai law ruling such submission, waiver or appointment invalid.

An express waiver of sovereign immunity made in writing may be effective in Thailand.

A judgment of a foreign court will not be enforced by the Thai courts but may, at the sole discretion of the Thai courts, be admissible as evidence in an action in the Thai courts.

An award rendered by an arbitral tribunal is recognised and enforceable in a Thai court under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Thai Arbitration Act B.E. 2545 (2002). Arbitral awards are enforced by Thai courts upon due application of a party seeking to enforce the award. Generally, Thai courts will not re-examine the merits of the dispute since they have already been examined and decided on by the arbitration tribunal. However, a Thai court may refuse to recognise and enforce an arbitral award based on several grounds, as prescribed in Section 40 of the Thai Arbitration Act (eg, if the court views that the arbitral award is contrary to Thai law, public order or good morals).

Due to Thai laws generally prohibiting foreigners from owning title to land, there are very few exceptions where foreign lenders can enforce security over land by foreclosure. However, there are no restrictions that could affect a foreign lender’s ability to enforce its rights under a loan or security agreement.

Bankruptcy Proceedings

Under bankruptcy proceedings, upon a receivership order, an unsecured creditor will be prohibited from enforcing any of its rights in respect of claims against an insolvent debtor outside of the insolvency proceedings and shall submit an application for repayment in order to be repaid.

A secured creditor may opt to enforce its security outside of bankruptcy proceedings. However, if the proceeds from enforcement of secured property do not cover the whole amount of debt, the secured creditor will not be able to apply for the repayment of debt in respect of the outstanding amount. A secured creditor may also choose to file an application for repayment. In such case, the secured creditor will be entitled to any debt shortfall after enforcement of the secured property.

Rehabilitation Proceedings

When the bankruptcy court accepts the petition for rehabilitation proceedings, an automatic stay or moratorium is levied to protect the debtor against actions by creditors such as litigation, enforcement of security and bankruptcy proceedings. As such, secured creditors would be unable to enforce their security outside the rehabilitation proceedings, unless otherwise approved by the bankruptcy court.

Creditors whose rights are restricted by the moratorium may submit a request to the bankruptcy court for an order to amend, modify or annul the limitations on their rights on the grounds that the restrictions are not necessary for the rehabilitation proceedings or that they do not sufficiently protect secured creditors’ rights.

In the context of a corporate debtor’s bankruptcy, Section 130 of the Bankruptcy Act outlines a specific hierarchy for the payment of debts, as follows:

• expenses incurred by the official receiver in the management of the debtor’s property;
• fees for the collection of property;
• fees incurred by the plaintiff creditor as well as lawyers’ fees, as determined by the court or the receiver;
• taxes and duties due within six months prior to the receivership order and money that employees are entitled to receive prior to the receivership order in return for the service performed for the employer debtor;
• other debts; and
• subordinated debts.

In instances where there is insufficient money to fully satisfy the debts within a given tier, a pro rata distribution will be made among the creditors in that tier.

The secured creditors will have preferential rights over their secured assets, as mentioned in 7.1 Impact of Insolvency Processes. Any debt shortfall after enforcement of the secured assets will be classified as other debts.

The period of insolvency proceedings in Thailand typically depends on many factors. If the bankrupt entity has no assets, when such entity is declared bankrupt the bankruptcy process would take approximately one year from the initiation of the bankruptcy proceedings until the bankruptcy court orders the case to be closed.

On the other hand, if the bankrupt entity holds assets, when such entity is declared bankrupt creditors may notify and request the official receiver to confiscate the debtor’s assets and proceed to sell those assets at public auction. The period of insolvency, where the debtor has assets, depends on the number of assets held by the debtor and whether each of the assets is successfully sold at auction. If the assets were not sold at auction, the auction process will be re-initiated, with the assets being discounted each time until they are sold. The period when the auction takes place also depends on the number of auction cases. Typically, the auction occurs once every three to four months. As a result, an insolvency process where the debtor has assets may take three years, or more, after bankruptcy proceedings have been initiated.

The recovery rates for unsecured creditors in Thai insolvency proceedings are varied. Given that secured creditors typically have the right to enforce their security over the debtor’s assets first, what remains for distribution among unsecured creditors is often limited. Consequently, the recovery rates for unsecured creditors are generally minimal.

Business rehabilitation procedures outside of insolvency proceedings are available in Thailand. Either the debtor or the creditor has the right to submit to the court a petition for a business rehabilitation. If it appears that a debtor is insolvent or unable to pay its debt, is indebted to one or more creditors for a definite amount of not less than THB10 million – regardless of whether such debt is due immediately or not – and there are reasonable prospects of rehabilitating the debtor’s business, the court will usually accept the petition for rehabilitation proceedings.

Application for Repayment

As soon as the court issues an order to initiate the rehabilitation proceedings and appoints the planner (nominated by the one who filed the rehabilitation petition or by the creditors), all creditors (including foreign creditors) are required to file debt repayment applications, together with all supporting documents, against the debtor with the official receiver within one month from the date on which the order appointing the planner is published in the government gazette. A failure to file a claim by the end of such period (which is not extendable, and where no exceptions are provided for foreign creditors) will result in the creditor forfeiting its claim against the debtor.

Business Rehabilitation Plan

After the plan has been prepared by the planner, a creditors meeting must be held for approval of the plan. The proposed plan must be approved by either:

• creditors holding at least two-thirds of the outstanding debt value and more than half of the number of total creditors from each class of creditors; or
• creditors holding two-thirds of the outstanding debt value and more than half of the number of total creditors from at least one class of creditor, and creditors holding 50% of the outstanding debt value of all classes of creditors.

Upon approval of the plan by the creditors and the court, the plan will be considered to be binding on all creditors who submitted an application for repayment, whether voting for or against the plan and regardless of being absent during the voting. If creditors have not filed an application for repayment of debt, these creditors will forfeit their rights to repayment unless the rehabilitation plan states otherwise, or the court cancels the order for business rehabilitation.

In any case, the creditors will always have the right to claim the full amount of debt from any guarantor, joint debtor or third-party security provider, since they are not bound by the rehabilitation plan.

The major risks to lenders when obligors become insolvent are the risks of the financing transaction or any related action thereof being subject to revocation under undue preference provisions pursuant to the Bankruptcy Act and the Thai Civil and Commercial Code.

In a case where it appears that the borrower, security provider or guarantor becomes insolvent and is subject to bankruptcy proceedings, other creditors or the official receiver may be entitled to ask the court to cancel any payment made or provision of any security by the borrower, the security provider or the guarantor to the lender with knowledge that it would prejudice other creditors. There is a legal presumption that if the payment or the provision of security is made during a period of one year before the initiation of the bankruptcy proceedings and thereafter, the borrower, the security provider or the guarantor – and the lender – knew that such action would be prejudicial to the other creditor(s).

In addition, in the bankruptcy proceedings of the borrower or security provider, the court has the power, upon the application of the official receiver, to order the cancellation of the transfer of property or any act carried out by the borrower or security provider, or carried out with the borrower’s or the security provider’s consent, three months before the bankruptcy petition or thereafter with the intent to give any creditor an advantage over other creditors.

Project financing structures in Thailand are commonly used for power plants, large-scale infrastructure projects, and oil and gas and mining projects. Project financing structures are in fact usually found in the energy sector and power plant projects.

Following various government policies supporting renewable energy projects, in 2022, the Energy Regulatory Commission of Thailand (ERC) announced that it would purchase power from four types of renewable energy projects, namely biogas, wind, ground-mounted solar and ground-mounted solar with a battery energy-storage system (BESS). The total purchasing target is 5,203 MW. Furthermore, ERC is currently considering purchasing 3,668 MW of additional renewable energy and expects to launch an offer this year. We anticipate that the majority of these renewable projects will be structured using project financing as the financing method.

The Public-Private Partnership Act B.E. 2562 (2019) came into force in March 2019. The Act streamlines the process of investment partnerships between the public and private sectors. It is applicable to various types of projects, ranging from infrastructure transportation to public services, energy, telecommunications, hospitals, schools and exhibition centres.

In 2018, the Eastern Special Development Zone Act, B.E. 2561 (2018) was enacted. This Act creates an expedited process for the approval of public-private partnership projects within the so-called Eastern Seaboard.

Apart from the Eastern Seaboard initiative, under the Public-Private Partnership Project Preparation Plans for 2020–27 (the “PPP Plans”"), there are 135 PPP projects in the pipeline, with investment costs of over THB1.18 trillion, to be executed within an announced timeframe.

There are no legal requirements that any of the project documents be governed by Thai law. The parties can agree to project documents being governed by a foreign law, including English and New York law, and disputes may be resolved in any foreign courts or by international arbitration.

In all circumstances, if a governmental authority is a party to the project documents, it is generally necessary for the project documents to adhere to standard terms/templates, with Thai law being the governing law and disputes resolved by the Thai courts. For example, where an offtaker of power projects is a state-owned Thai electricity utility enterprise, or where an owner of project land is a governmental authority, the power purchase agreement and land lease agreement would typically need to be drawn up in accordance with standard terms, allowing only limited room for negotiation, with Thai law stipulated as the governing law and disputes resolved solely by the Thai courts.

Under Thai law, foreigners are generally prohibited from owning real property, both surface and subsurface, including any water resource that is represented by a title deed. Consequently, foreign lenders may not be able to foreclose on real property secured in favour of them following an enforcement event. Exceptions may apply, such as where land has been acquired under Board of Investment incentives or in respect of condominium units.

Given this drawback, in the case of syndicated financings, foreign lenders normally rely on separate security-sharing arrangements whereby proceeds from the enforcement of real property will be shared among all lenders on a pro rata basis based on each lender’s outstanding commitment.

With respect to water rights, there are no restrictions on foreigners applying for the use of water resources, unless the water resource is located on private land where ownership is subject to foreign ownership restrictions. There is no private ownership of public water resources, and the use of such water is subject to the relevant official’s permission.

It is important to note that where security is created over shares, if the foreign pledgee opts to foreclose on the pledged shares, such foreclosure will result in the borrower becoming a foreign entity (majority-owned by a foreigner). Consequently, such entity may not be able to carry on its business if its business operation is considered a restricted business for a foreigner, unless a foreign business licence is obtained. See 5.5 Other Restrictions. Similarly, where a security is created over a ship and the foreign mortgagor forecloses on the mortgaged ship, the ship will need to be deregistered and to exit Thai waters.

In structuring deals, several types of risk need to be carefully considered by lenders and their advisers. To ensure lenders’ protection, specific issues relating to cashflow projections, project operations and the identities of relevant counterparties should be taken into account.

The project company is usually a limited liability company newly set up as an SPV for the construction and operation of a project. Certain businesses, such as service businesses, are prohibited from being operated by a company wholly or majority owned by foreigners, except when a business licence is issued to allow the operation of such foreign businesses.

Bank loans are a major source of project financing in Thailand. The structure of the financing can be either bilateral or syndicated financing, depending on the risk exposure of each project. Lenders normally require capital contribution commitments by the project’s sponsors up to a certain ratio with no or only limited recourse. Security packages range from security over fixed assets to mere contractual rights of the project owner under project-related agreements. Export and import credit financing is used to support the export of products and services from Thailand as well as the import of overseas products and services into Thailand. Forms of financing include a letter of credit, packing credit, trust receipt and shipping guarantee.

Issuance of bonds is another common way for companies to raise funds for investments in projects. There has been an increase in the issuance of green bonds, social bonds, and sustainability bonds in the Thai bond market. These bonds are intended for investment or refinancing of loans for projects that are environmentally friendly, with the objective of promoting social and sustainability initiatives. Nowadays, SLBs are more prevalent where issuers set a sustainability performance target whereby interest payment of the bonds will tie with their – or their subsidiary’s – performance in achieving such target.

While there is no particular legislation dealing with the ownership of natural resources in Thailand, under the Thai constitution, the state possesses the power to manage, utilise, organise and safeguard natural resources. Since regulations concerning natural resources vary by type of natural resource, should a person aim to obtain the rights to any particular natural resource, they must comply with the relevant laws enacted for that resource. Regarding beneficiation, there are no regulatory requirements that restrict the beneficiation of minerals in Thailand before export.

The Office of Natural Resources and Environmental Policy and Planning Environment is the main regulatory body that imposes a requirement to conduct an Environmental Impact Assessment or an Environmental Health Impact Assessment for certain types of projects under the Enhancement and Conservation of National Environmental Quality Act B.E. 2535 (1992).

The Department of Industrial Works oversees various environmental, health and safety issues such as electrical system safety, chemical and radioactive safety, workplace safety, fire hazard safety and general management of air and water pollution, as well as the submission of Environmental Safety Assessments in accordance with the Factory Act B.E. 2535 (1992).

In addition to the two major regulators, there are various governmental agencies responsible for environmental, public health and safety issues, including:

• the Hazardous Substance Control Bureau, which is responsible for the management of hazardous substances, namely, oil, gas and fuel;
• the Department of Energy Business, which is responsible for the operation and construction of large oil storage facilities;
• the local authorities, which are responsible for construction and public safety; and
• the Department of Health, which is responsible for general public sanitation.