Thailand’s Securities and Exchange Commission (SEC) has issued regulations on debt crowdfunding through funding portals in order to increase alternative fundraising methods for small and medium-sized enterprises and startups.
Crowdfunding is a method for raising sums from investors through a funding portal on the internet. It is an alternative channel for SMEs and startups to access capital sources through issuances by offering equity or debt securities for sale.
SEC assistant secretary-general Praoporn Senanarong said, “The debt crowdfunding scheme is part of the SEC’s regulatory efforts to support the governmental policy on promoting greater access to alternative financing resources for SMEs and startups to raise funds and expand their business growth. The new scheme follows a similar regulatory framework governing the existing equity crowdfunding rules.”
Pursuant to the new regulations, an eligible fundraiser for the crowdfunding scheme must be a Thai company with a clear business plan. With respect to the financing limit, an SME or a startup may raise capital from retail investors to a maximum of Bt20 million during the first 12 months and to a total of no more than Bt40 million, equity and debt combined, throughout the whole project. The fundraiser is also required to report the offering results to the SEC.
Interested investors are advised to study the crowdfunding scheme carefully from all angles before making an investment decision, from the opportunities and the associated risks to the terms and conditions. This is because applicants for the crowdfunding option are generally SMEs and startups of a small business size or at the initial stage of their operation, and thus exposed to high risks. Those risks include the business risk, obligations of offered debts, trading channels and transfer limitations.
In addition, to manage risks and potential impacts on investors, the new crowdfunding regulations prescribe an investment limit of Bt100,000 per business (equity and debt combined) and the annual investment limit of Bt1 million for each retail investor. There is no investment limit for non-retail investors.
Non-retail investors are institutional investors, venture capital businesses, private equity trusts and qualified investors.
The crowdfunding must be conducted through a funding portal approved by the SEC. Funding portals play the pivotal role of screening eligible companies and overseeing their information disclosure. The SEC does not grant an approval for each crowdfunding project or supervise pre-offering disclosure.
To be eligible for a funding portal approval, an applicant must have the same qualifications and work systems required for equity crowdfunding, and must also have a system for assessing credit worthiness and risks of the debt fundraisers.
Currently, there are several companies interested in applying for an approval to operate a debt-funding portal business.
In addition, the SEC has amended the overall crowdfunding requirements to be more consistent with other regulations. This includes the revision to the definitions of a private equity trust and a venture capital business in line with the digital-token offering rules, and the amendments to the rules governing equity trading in the secondary market in line with the primary market offering rules.
The debt crowdfunding regulations have been in force since May 16, 2019. The proposed regulations completed focus group and public consultation sessions on January 28, 2019.