The following entities typically act as sponsors and lenders:
The public-private partnership in Thailand follows a number of stages:
In the last two stages, the parties will typically have to rely on contract management when any question or conflict arises. The typical issue encountered in practice is a delay in construction, which may happen for several reasons, such as a delay in the handover of the project land by the relevant government agency. This would delay the construction process and may result in a delayed commercial operation date and cost overrun. Lenders are typically concerned by these issues and will monitor the project documents carefully if these events arise.
Most public-private transactions operate on a build-transfer-operate (BTO) basis, so the project company does not have any significant assets to be provided as security. The lenders will need to consider the resulting risks.
Typically, the lenders will have a step-in right in project financing. They would generally request the security document package to include conditional assignments of rights and duties under the project documents to ensure a smooth stepping-in process.
For the risks during the construction and operation phase, the lenders will typically request sponsor support to cover both pre- and post-completion. The triggering events for the pre-completion and the post-completion support will differ. The key triggering events for the pre-completion support include the cost overrun events and the premature termination of any project agreement. The post-completion support triggering events include cash shortfall or other termination of the project financing.
Moreover, the lenders will typically negotiate an event of default clause to provide an exit in case of any project-specific risk. They would also generally consider using a material adverse change clause to pressure the borrower to provide additional security, sponsor support or exit.
Loans are generally provided on a senior basis (secured if security is available), and may be bilateral or syndicated. Multinational or supranational institutions may lend alongside the commercial lenders. Equity and sponsor support is provided by way of subordinated loan. Tiered financing involving mezzanine and other forms of non-senior debt from commercial lenders is very unusual in Thailand. Term and revolving facilities for working capital generally rank pari passu.
Railways, highways, roads, airports and ports will be active in the coming years as they are in the government's project pipeline. The government is focusing on the development of airports in the provinces on the Andaman side of the country, including the continuation of the U-Tapao International Airport development and the development of an airport in Phuket (as seen from the latest prime minister visit in late August 2023).
Ports development continues to be another focus areas. After the new prime minister was appointed in August 2024, there seemed to be some uncertainty surrounding the Landbridge Project, which will link the Andaman Sea in the Chumphon Province to the gulf of Thailand in the Ranong Province. However, the current Minister of the Ministry of Transport has claimed that the feasibility and environment assessment will remain in the pipeline of the government, along with the development plans for the project.
The focus on land transportation will continue to be emphasised by building large highways connecting provinces.
2024 has seen an interesting trend for energy business, with the clean energy sector remaining strong in the project financing market. The new big lot of renewable energy-generated electricity and the waste to electricity purchase quota have been announced, along with the Utility Green Tariff, which is the new grid infrastructure developed to accommodate sales and purchases of electricity with a renewable energy certificate.
There are three types of security over assets under Thai law:
In addition, bank accounts and contractual rights may be subject to conditional assignment.
Mortgages can be created over immovable property (land and buildings), certain vessels and machinery that is registered under the Machinery Registration Act B.E. 2514 (1970). The mortgage is perfected by registration at the relevant government department (the Land office or Ministry of Commerce).
Pledges can be created over movable property, which is basically all property except immovable property. However, to perfect a pledge the property must be delivered to and held by the lender or its agent. Devices such as appointing the manager of a project as the agent of the lender to hold project assets on its behalf have not been enforced by the courts. Therefore, inventory, raw materials and bank accounts are practically incapable of pledge. In project finance, the assets most commonly subject to pledge are the shares in the project company. To perfect a pledge of shares, the pledge must be entered in the company’s shareholders register and the share certificates delivered to the lender or its agent. An analogous process is available to create security over listed shares, which may be dematerialised.
The Business Security Act B.E. 2558 (2015) (BSA) was introduced in 2016 to provide the possibility of creating security over asset classes beyond the limited classes that might be subject to mortgage or pledge. Such security can be created over inventory, raw materials, receivables, insurance policies, contractual rights, intellectual property, bank accounts, real estate held for development purposes and a whole business. The business security is perfected by registration at the Ministry of Commerce. Only domestic financial institutions (Thai or foreign acting through a Thai branch) or foreign financial institutions acting in a syndicate alongside domestic financial institutions can take business security. Updated lists of the assets subject to the business security may be required to be delivered to the Ministry from time to time.
Bank accounts and rights under contracts, including leases, may be subject to conditional assignment, which is strictly not a security interest under Thai law.
Thai lenders in project financing typically look for project-related assets, including:
Thai law does not permit a floating charge but does permit a universal security by way of a whole business security. However, a whole business security is not typically provided as its practical use is open to challenge.
The enforcement process under the BSA can be done without litigation proceedings. Once the security enforcement event under the BSA arises, the lender will notify the security enforcer, who will conduct a fact-finding inquiry to determine whether a security enforcement event has indeed occurred. If it has and the lender wishes to enforce the security, the security enforcer makes a decision for security enforcement. To appeal this decision, the objecting party must submit its claim to the court within 15 days from the date it receives the decision notice.
If there is no objection, the borrower must hand the business over to the security enforcer, including the bank accounts, seals, receivables and debts. The security enforcer will manage the business until it can be disposed of or sold. The security enforcer is empowered to value and determine the methods of sale of the business on its own. The sale proceeds will be applied in the following order:
Any remaining amount will be paid to the borrower.
This process means that the borrower will lose control of the business and will not have any influence over the valuation, method of sale or management of the business after the handover. The lack of control increases the borrower’s risk of its business being sold for less than market value.
The steps for the security enforcer to make a decision for security enforcement as opposed to directly going to court may also expose lenders to potential risks, including the malicious transfer of property from the business.
The costs associated with registering collateral security interests depend on the type of the security interest being created. Generally, the costs, excluding the legal fees, will include the governmental fees and stamp duties.
Registration fees for business security depend on the type of property subject to the BSA.
The collateral will need to be identified in the security document, complying with each legal perfection requirement under the law. A mortgage or pledge needs to specify the identity of the property mortgaged or pledged.
A business security can be created over a class of assets, but there is a requirement to deliver a list at the time that the business security is created. The list may be amended later. In such case, the security receiver, with written consent from the security provider, shall proceed with the amendment of the list within 14 days from the date of receiving such written consent.
A Thai company must have the power to grant security or guarantees in its objects in its Memorandum of Association. There may be restrictions in any agreement to be provided as collateral against security being created over it.
To be valid under Thai law, guarantees must specify:
The Thai Civil and Commercial Code (CCC) also specifies certain matters relating to guarantees, which benefit guarantors and cannot be excluded by contract.
This issue depends on the nature of the collateral. Mortgages and business security must be registered. Pledges cannot be registered but the pledged property must be delivered to the pledgee or its agent in order to create a valid pledge.
Release depends on the nature of the security. Registered security interests such as business security and mortgages must be deregistered. For pledges, the pledged property is redelivered to the pledgor but it is customary to sign a memorandum confirming the discharge of the debt; in the case of pledged shares, notice of the release would be given to the issuing company to remove the entry from the share register.
A secured lender can enforce its collateral after the loan has been accelerated and remains unpaid or remains unpaid at maturity. The enforcement of collateral depends on the nature of the security created.
To enforce a mortgage (whether over land and buildings or machinery), after giving reasonable notice to the debtor of the enforcement (the length of reasonable notice will depend on the asset and status of the debtor but there is no Supreme Court precedent for a period of less than 30 days), the creditor needs to obtain a court judgment for the enforcement of the mortgage. It may take nine months to obtain a first instance decision, and the debtor can appeal to the Court of Appeal and the Supreme Court. After a court order is obtained, enforcement takes place by way of an auction sale conducted by the Official Receiver’s Department of the Ministry of Justice (the Official Receiver).
Foreclosure is available in theory but not in practice, as it requires interest to have been unpaid for five years.
A pledge can be enforced without a court order, but reasonable notice must be given to the provider of the security to perform its obligations. Enforcement is by way of public auction conducted by the creditor.
The enforcement of a business security does require a court order if the security provider refuses to give over possession of the secured property; the security receiver may file a petition to the court for enforcement. However, an auction process is involved, which is more streamlined than the auction process under the CCC applicable to mortgages.
A choice of foreign law will be upheld by the Thai courts if the foreign law is proved to the satisfaction of the court, which is within the discretion of the court. However, a Thai court will not enforce a foreign law if doing so would be contrary to the public order or good morals of the Thai people.
There are no Supreme Court precedents ruling on the validity of clauses providing for submission to the jurisdiction of foreign courts. However, this may be moot since Thailand does not enforce foreign judgments.
A judgment given by a foreign court will not be enforceable in Thailand without a retrial of the merits of the case. However, foreign judgments may be used as evidence in Thai proceedings.
Thailand is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Accordingly, a foreign arbitral award obtained in a jurisdiction of another signatory to the Convention will be enforceable in Thailand, subject to the conditions in the Arbitration Act B.E. 2545 (2002). This provides the following conditions for the enforcement of foreign arbitral awards.
Foreign lenders are not prejudiced in enforcing their rights under loans or security documents (although foreign lenders cannot have the benefit of business security unless as part of a syndicate with Thai financial institutions). Proceedings will be conducted in Thai, and all contractual and other documentation to be submitted to the court will generally need to be translated into Thai.
Foreign lenders are not restricted in any way from granting loans under Thai law. However, if they wish to lend from a presence in Thailand, they will need a licence under the Thai Foreign Business Act B.E. 2542 (1999) (FBA), or be licensed as a financial institution under the Thai Financial Institutions Business Act.
The granting of security or guarantees to foreign lenders is not restricted or impeded in any way under Thai laws, except that foreign lenders cannot have the benefit of business security unless as part of a syndicate with Thai financial institutions.
In brief, the FBA prohibits a number of activities for foreigners; for these purposes, foreigners include Thai-incorporated companies where 50% or more of the capital is held by foreigners.
The activities are divided into three lists: activities in one list are completely prohibited for foreigners, and activities in the second and third lists may in theory be engaged in by foreigners with permission from the appropriate Thai government body. In practice, permission is never given for the activities on the second list, while permission for certain of the activities on the third list may be forthcoming from the Department of Business Development of the Ministry of Commerce.
For certain activities, promotion from the Thai Board of Investment (BOI) may be available, in which case foreign majority-ownership may be possible.
Exceptions to the foreign ownership restrictions may also be available to companies ultimately owned by US citizens (with or without Thai nationals) under the US–Thai Treaty of Amity, and under certain ASEAN treaties.
Prior to remittance abroad of any amount payable, by either Thai or foreign investors, one must apply for foreign exchange approval from the Bank of Thailand or through its authorised agents (eg, commercial banks in Thailand holding a foreign exchange licence). Such approvals are routinely granted for all bona fide transactions, provided that the relevant supporting documents are submitted, including evidence that the obligation to make payment has arisen under the foregoing agreements (such as judgment from a Thai court) to the satisfaction of the authorised agent.
Thai laws do not prohibit or set out any condition for any project company to maintain offshore foreign currency accounts. Note that the Bank of Thailand regulates only the opening of a bank account in Thailand, but payment to the account from Thailand is subject to foreign exchange approvals and there may be obligations on a Thai recipient of foreign currency to repatriate it if it exceeds USD1 million.
Financing or project agreements do not need to be registered or filed with any government authority, but local formalities must be complied with (such as payment of stamp duties) in order for the agreement to be valid and enforceable.
Ownership of Land
Ownership of land does not require a licence. However, land may not be owned by foreigners or companies that are majority foreign-owned, unless the company has received a promotion from the BOI for the business or project to be carried on or operated by it.
Ownership of Natural Resources or Undertaking the Business Thereof
Thai law prohibits any person to own natural resources. Therefore, no one is allowed to operate or hold a licence in relation to owning natural resources since they are public property.
Undertaking Operations on Land or Natural Resources
For Thai entities, pursuant to the Land Development Act B.E. 2543 (2000), no person shall be engaged in land development except when a licence has been obtained from the Bangkok Land Development Board or the Provincial Land Development Board, as the case may be.
As natural resources are public property, pursuant to the relevant laws, prior to undertaking certain operations thereon, a licence or concession certificate or approval from the appropriate minister is required to be obtained from the government – eg, mining, groundwater and logging.
Agency is recognised in Thailand but trusts are only used in specific situations (such as Real Estate Investment Trusts). Security may be held by a security agent but never a security trustee.
In the case of mortgages and business security, all lenders are registered as secured creditors.
It is possible for a security agent to hold pledged assets on behalf of the lenders, but it is normal for all the lenders to be parties to the relevant pledge agreement. Parallel covenants have been used in certain transactions to avoid issues with the security being held by an entity that is different to the lenders, but the effectiveness of parallel covenants has not yet been tested in the Supreme Court, as far as is known.
The priority of competing security interests is determined by the time of registration. As between different classes of lenders, priority can be varied by contract. Subordination arrangements between creditors may, as between the creditors, survive the insolvency of the borrower but will not be effective as against the borrower in its insolvency. It is possible under Section 130 of the Bankruptcy Act B.E. 2483 (1940) to create obligations that are subordinated to all unsecured creditors.
In theory, Thai local law does not require the project company to be organised under the laws of Thailand. However, the effect of the FBA and the requirements for concessions, etc, to be granted to Thai entities, combined with the desire for limited liability on the part of project sponsors, means that project companies are almost always limited liability Thai companies.
Business reorganisation/rehabilitation in Thailand in an insolvency involves the following key steps.
The impact of the commencement of insolvency processes on a lender’s rights depends on whether the insolvency proceedings are bankruptcy or reorganisation/rehabilitation. The commencement of reorganisation/rehabilitation proceedings results in an automatic stay, preventing the enforcement of judgments or security or the repossession of leased property; it does not prevent the acceleration of debt, the termination of contracts or the exercise of rights of set-off.
No stay applies on a bankruptcy petition, and secured creditors are free to enforce their security.
In a reorganisation, the order of payment is decided by the restructuring plan proposed by the planner, as approved by the meeting of the creditors and the bankruptcy court.
The automatic stay will apply in a reorganisation, preventing the enforcement of security. A lender who did not initiate the reorganisation proceeding must submit a repayment request within one month after the appointment of the planner. The debtor, the planner and other creditors have the right to challenge the repayment request within 14 days after the one-month period has elapsed.
A creditor whose repayment request has been accepted will receive an allocation of voting rights to participate in the creditors’ meeting under the processes above. It is therefore very important that the lender is mindful of the timeline for both claiming the repayment and challenging other creditors’ claims for repayment.
Transactions entered into shortly before the commencement of insolvency may be set aside as preferences or transactions prejudicing creditors. In addition, the lender of a loan is not able to recover it in subsequent insolvency proceedings if at the time the loan was made the lender knew the borrower was insolvent, subject to certain exceptions (Section 94 of the Bankruptcy Act B.E. 2483 (1940)).
Foreign lenders are not excluded from participating in insolvency proceedings.
Foreign insurance companies can apply for a licence to conduct their insurance business, provided that they establish a branch in Thailand and comply with the procedures and conditions under the relevant ministerial regulations.
An insurance policy may be payable to a foreign creditor if the foreign creditor is named as loss payee or has the benefit of a business security in its favour of the insurance policy. The foreign creditor must be acting in a syndicate alongside Thai financial institutions in order to be able to have the benefit of business security over the policy.
Payments of principal are not subject to withholding tax. Payments of interest are not subject to withholding tax if made to a Thai lender but will be subject to withholding tax if paid to a foreign lender, at the rate of 15%, which may be reduced to 10% pursuant to an applicable Double Tax Treaty. Other payments (fees) may or may not be subject to withholding tax depending on whether they are categorised as interest.
Stamp duties and registration fees are relevant, but the borrowers typically bear any associated costs.
Under the CCC, interest may not exceed 15% per annum. This limit does not apply to Thai financial institutions, which may charge interest at the rate announced publicly at the bank’s offices and/or on its website. For a foreign financial institution duly registered under foreign law, the maximum interest rate chargeable is 20%.
Project agreements are typically governed by Thai law.
A domestic loan will be governed by Thai law. A cross-border loan may be governed by English, Hong Kong or Singapore law, as an alternative to Thai law.
In the case of a cross-border transaction using foreign law, securities documents for Thai-situated assets will still typically employ Thai law.
Unit DE, Tower B, 18th floor
Vanissa Building
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Lumphini
Pathum Wan
Bangkok 10330
Thailand
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contact@tttandpartners.com www.tttandpartners.comProject Finance in Thailand: An Introduction
One of the major trends in project development and project financing over the past year is the continued development in the clean energy sector. Carrying on from previous years, Thai regulators in both the energy and financial sectors remain active in their push towards more widespread clean energy adoption. This means that there will be financing markets in new infrastructures to accommodate the trend, and the liquidity requirements remain crucial to this development.
There are also several trends to watch regarding policy updates, which will reshape Thai project development and project financing if they come into effect. Notably, these trends include the shift of the railway revenue sharing models, the development of the Thailand taxonomy, and the development of the carbon emission quota.
Recent Developments and Updates
Changes to the energy market in Thailand are generally gradual. There have been some significant milestones in relation to electricity trading.
Clean energy purchase quota
Energy businesses are currently regulated by the Energy Regulatory Commission (ERC), which acts in accordance with the policies set out by the Energy Policy and Planning Office (EPPO). The Thai electricity market is arguably a monopolised trade by the state-owned enterprises.
To simplify the structuring of electricity sale and purchase, the EPPO will issue a resolution to approve an electricity purchase quota in principle. ERC will issue a notification to open a bidding for the electricity producers to bid for quota to sell electricity to the Electricity Generating Authority of Thailand (EGAT). EGAT will then transmit the electricity purchased to the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority (PEA), which will distribute the electricity to the consumer uses.
RE Big Lot: renewable energy quota
One of the biggest bidding quotas in recent times is the “RE Big Lot”, which was initially approved in principle under the resolution of EPPO Meeting No 3/2565 (158th) dated 6 May 2022 (“RE Big Lot EPPO Resolution”). It has over 5,000 MW quota. There has since been a second round of the RE Big Lot bidding, with over 3,000 MW quota, and there are currently speculations on the third RE Big Lot bidding announcement, with ERC allocating around 1,488 MW for bidding.
The RE Big Lot is a purchase quota reserved specifically for renewable energy. The RE Big Lot EPPO Resolution acknowledged that the RE Big Lot is part of the plan to accelerate the renewable energy proportion and reduce the proportion of fossil fuel-generated electricity purchases, as set out in the national strategy plan.
Waste-to-energy power plant
Together with the approval of the RE Big Lot second round bidding, the resolution of EPPO Meeting No 2/2566 (165th) dated 6 March 2023 also approves an additional 6.5 MW quota for biomass-generated electricity and another 30 MW quota for industrial waste-generated electricity.
Utility Green Tariff
To encourage clean electricity adoption, ERC issued a notification regarding service requirements and the rates of the Utility Green Tariff in December 2023. In principle, the Utility Green Tariff will allow the sale of electricity to the purchaser together with its renewable energy certificate (REC). In Thailand, it was traditionally impossible to purchase electricity from the grid with a REC. However, under this system, an electricity purchase from the grid will come with an REC if selected by the consumer. This is one of the infrastructures that ERC and EPPO provide to the public for the ease of clean electricity adoption. Electricity generated under the RE Big Lot programme is also part of the electricity intended to be sold with an REC under this programme.
Direct power purchase agreements (PPAs)
In the electricity sale and purchase structure, there would traditionally be no direct power sale and purchase among the private parties: electricity is purchased through EGAT, MEA and PEA only. However, in recent times, there have been direct PPAs between the private parties in several forms, including the On-Site PPA where the electricity is sold off-grid such as a solar rooftop project or a private wire PPA project. This means that electricity trading between the private parties remains limited to the transaction outside of the electricity transmission grid operated and maintained by EGAT, MEA and PEA.
In recent years, there have been developments to ensure third-party electricity producers have access rights to the grid, to allow such third parties to connect and transmit their electricity to their client through the grid (third-party access, or TPA), although a 2022 ERC notification regarding the TPA framework requires EGAT, PEA and MEA to issue a TPA code outlining the conditions to connect to their respective grids (“TPA Code”). ERC has not approved any of the TPA Codes drafted by EGAT, PEA or MEA. In addition, TPA continues to be the subject of studies by the regulator. There was an approval for several sandbox projects relating to TPA usage in January this year.
Trends to Watch
Several aspects of clean energy and the public-private partnership laws and market practices are currently being developed at a very gradual rate. While still very much in an incubation stage, there has been some notable progress. Once these developments have reached the fruitful stage, they could significantly impact the clean energy and project financing market in the years to come as well.
A switch in the railway PPP revenue models in Thailand
In the railways sector, the current revenue-sharing model is the PPP Net Cost, whereby the private party will collect the project’s revenues throughout the term of the project, and will share the revenues to the government at the agreed rate.
However, following the new government’s policy to reduce ticket prices, there are now contemplations to switch the model to the PPP Gross Cost model, whereby the private party will have to pass all of the revenues collected to the government and the government will pay the private party a return of investment and/or fees in relation to the project as the case may be. The switch is expected to allow the government to set ticket fees for passengers.
This switch is planned to be imposed on the existing railway project. If successful, this would establish a trend of the PPP Gross Cost being the revenue-sharing model adopted for the railway and other mass transit systems moving forward.
Thailand Taxonomy Phase I
The Thailand Taxonomy Phase I was released in July 2023, and the works for the Thailand Taxonomy Phase II began in February 2024. The Thailand Taxonomy is the fruit of a collaboration between the Thai regulators in various sectors, including the Security and Exchange Commission and the Bank of Thailand. Although not legally binding, it serves as a guideline to establish the clarification system of certain business industries on their impacts to the environment via a traffic light assessment system. It remains to be seen how financial institutions will utilise this taxonomy in their consideration to provide project financing.
Sustainability-linked loans and green loan guidelines
An increasing number of loans have a sustainability-linked feature and there are more green financing products in the market, but the Bank of Thailand has not required financial institutions to provide green financing products. The key document remains its policy guideline issued in 2023, which has no legally binding power.
Considering the Bank of Thailand’s involvement in the production of the Thailand Taxonomy, it remains to be seen whether additional guidelines, policies or regulations will be issued in the future.
Carbon credit
Thailand has had its own carbon credit systems for quite some time, but trading has always been on a voluntary basis. There are now four draft bills pending in the legislature process. In principle, under the bills, businesses will be subject to carbon emission quota, and those which have exceeded their quota will have the option of carbon emission trading, carbon credit purchase or a carbon tax payment. While the development to solidify the marketability of carbon credit is still far from completion, this is an exciting development for carbon credit projects.
Future forecast
The last few years have seen a high volume of renewable electricity power plants. There are likely to be many more in the future, considering the government’s keenness to increase the bidding quota and the issuance of policies paving the way for direct PPAs and TPA, which would allow renewable power plants in Thailand to prosper.
There are also developments in the carbon credit trading market. Once the carbon emission limit is imposed, there is likely to be increased demand for carbon credits, giving rise to more carbon credit project development. This trend will be observed closely in the coming years.
Lastly, the switch of the revenue-sharing model for railway system public-private partnership projects is a very crucial change in the market. It will impact the risk allocation and negotiating issues for private parties in future projects; lenders’ interests and the financial risks will be impacted as well. It remains to be seen how these changes will play out in the years to come.
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Vanissa Building
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Lumphini
Pathum Wan
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