Maythawee Sarathai and Ben Thompson of Mayer Brown JSM assess the conditions and framework for project financings in Thailand

1.1 What are the main project finance trends and developments (for example, increased use of project bonds) recently seen in your jurisdiction?

The political protests in late 2013/early 2014 and subsequent coup have had a gradual impact on the economic outlook for Thailand and, in turn, the project finance market, which is less active than in previous years.

While there is still activity in the renewable energy space, particularly solar (and with an increasing focus on the potential for waste to energy), these projects tend to be smaller in scale.

However, infrastructure projects (eg, city rail links, additional lines for the Bangkok mass transit system, expansion of international airports in other provinces and expansion of existing airports) are encouraged by the government according to a plan approved in 2014.

Another trend in previous years was the increasing ambition of Thai developers, supported by their Thai financiers, and this has continued, with Thai developers increasingly dominating the domestic projects market and looking further afield for opportunities in the region and beyond, and across sectors.

1.2 What role have export credit agencies, multilateral agencies and international financial institutions played in supporting project finance transactions in your jurisdiction? Please include an overview of the main institutions domiciled in your jurisdiction.

Multilateral agencies and export credit agencies have played an important role in supporting project finance transactions in Thailand in recent years and, notwithstanding the increasing strength and liquidity of the Thai banking market, are likely to continue to do so.

This is particularly likely on larger projects where foreign investment is involved, or as necessary to support more burgeoning sectors. For example, the Asian Development Bank (ADB) and the International Finance Corporation (IFC) have both been key in supporting project financings in the renewable energy sector, most notably in the wind and solar space. Both institutions have offices in Bangkok, along with major regional hubs in Manila (ADB) and Hong Kong/Singapore (IFC).

Export credit agencies have also been active in support of overseas investment, for example JBIC financed both the Gulf U Thai and Nong Saeng power projects. Thai-Exim also continues to play a leading role in supporting Thai outward bound investment, most notably its recent support to Toyo Thai on its development of the Ahlone power project in Myanmar, Myanmar's first independent power project.

2.1 What types of security are usually seen in project finance transactions in your jurisdiction, and are there any notable exclusions, including assets which cannot be secured?

Thai law officially recognises only two methods of taking security:

(i) a mortgage, which is available for security over immovable property (such as land and buildings) and certain types of machinery (machinery which is eligible for registration under the Machinery Registration Act); and,

(ii) a pledge, which is available for security over movable property, such as shares in the pledgor's company, instruments of investment and unregistered machinery.

Although not recognised by Thai law as a form of security interest per se (eg, under bankruptcy and court-supervised reorganisation proceedings) the taking of contractual quasi-security by means of assignment, whether absolute or conditional, is also common in Thailand.

In project finance transactions, assignments will also usually be provided with respect to rights under the various project documents, monies in bank accounts, and insurances.

Recently, the draft Business Collateral Act was approved by parliament and is expected to become law by mid-2016. The primary purpose of the new law is to expand the types of assets which can be used as collateral to facilitate access to finance, which will include account receivables, inventory, raw materials and intellectual property.

2.2 Would the law of your jurisdiction enforce arrangements whereby debt is subordinated by way of a contractual agreement (including in bankruptcy or insolvency proceedings)?

Yes, this is recognised in both general civil cases and bankruptcy (and insolvency) cases.

3.1 How is a security interest in each type of security perfected and how is its priority established?

Thai law requires that a mortgage is made in writing and registered with:

(i) the land department, for land, buildings and installations;

(ii) the central machinery registration office of the ministry of industry, for machinery.

The mortgage registered first will take priority over any mortgages registered at a later date.

Perfection of a pledge requires that the property which is the subject matter of the pledge is delivered by the pledgor to the pledgee, or a third party on its behalf. A pledge of shares will be recorded in the pledgor's share register. Otherwise, there are no registration, governmental consents or filings required in order to perfect a pledge.

3.2 Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise or defer them?

To register a mortgage with the land department, a mortgage registration fee of 1% of the mortgaged amount is payable, subject to a maximum fee of THB200,000 ($5,622).

To register a mortgage of machinery with the central machinery registration office, a mortgage registration fee of 0.1% of the mortgaged amount is payable, subject to a maximum fee of THB100,000.

Stamp duty does not apply to a mortgage or pledge agreement, provided that the required stamp duty applicable to the related loan agreement (0.05% of the principal amount of the loan, subject to a maximum stamp duty of THB10,000) has been paid.

There are no lawful techniques to minimise or defer the above fees or stamp duties.

3.3 May a corporate entity, in the capacity of agent or trustee, hold security on behalf of the project lenders as the secured party?

In a syndicated project finance loan, the lenders will normally appoint one of the lenders as a security agent for the purposes of administering the security on behalf of each lender. However, note that for a mortgage, the lenders must all be named as mortgagees under the mortgage agreement, even if the lenders have appointed a security agent.

Thai law does not recognise the concept of a trust or, therefore, the concept of a security trustee. The security agent alternative creates merely a contractual relationship between the security agent and the secured parties, which will be documented in the loan agreement.

4.1 What restrictions, fees and taxes exist on foreign investment in or ownership of a project?

The principal law relevant to restrictions on foreign investment in projects in Thailand is the Foreign Business Act (FBA). The FBA lists three categories of business that may not be carried out by foreigners (a company in which 50% or more of its share capital is owned by a foreign individual or company) unless permission under the FBA is obtained or an exemption granted. It is not, however, possible to obtain permission to carry on business as a foreigner for certain category 1 business activities.

Power projects and oil and gas projects are not included within the FBA restricted activities. Mining is, however, a category 2 restricted activity and would require approval under the FBA.

The Land Code also restricts ownership of land by foreigners, although a foreigner can lease land or obtain a concession from the government.

4.2 Can a government authority block or unwind a transaction involving foreign investors after it has closed for strategic, national security or other reasons?

Yes, a government authority is entitled to block or unwind a transaction involving foreign investors after it has closed for strategic or national security reasons, although this is rare in practice.

5.1 Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?

Thai law does not expressly provide for the effectiveness and enforceability of a submission by a debtor to the jurisdiction of a foreign court.

A Thai court will not automatically enforce a judgement obtained in a non-Thai court in connection with a non-Thai law governed document without re-examination of the merits of the case. Any judgment or order obtained in a foreign court may, at the discretion of the Thai courts, be admitted as evidence in new proceedings instituted in the Thai courts, and would be strongly persuasive.

An express written waiver of sovereign immunity will be effective.

5.2 Is English or New York law recognised as a valid choice of law in your jurisdiction?

Yes, both would be upheld as a valid choice of law in any action in the courts in Thailand but only to the extent to which the relevant law is:

proved to the satisfaction of the court (with satisfaction being determined within the discretion of the court); and,
not considered contrary to the public order or good morals of the people of Thailand.
The scope of public order or good morals under section 150 of the Civil and Commercial Code and section 5 of the Act on Conflict of Laws has not been established in Supreme Court judgment and is uncertain. However, it generally includes violations of criminal law, rights under the constitution, family law, laws relating to public security, and certain provisions of civil law concerning periods of prescription, usury ceilings, charging of interest, and exchange controls.

5.3 Would courts recognise a foreign arbitral tribunal award or court judgment? If so, what are the conditions applicable to such recognition?

Under the Arbitration Act, there is no distinction between domestic and foreign arbitration. Under the Act, and the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958, to which Thailand is a signatory, irrespective of whether the arbitral award is domestic or foreign, it binds all parties and can be enforced in Thailand upon application by either party to a competent court of jurisdiction. However, the competent court can refuse to enforce the award if the party against whom the award was made can prove any of the matters specified by the Arbitration Act.

6.1 How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral/security?

In liquidation proceedings, the secured lender retains rights against collateral provided by the debtor before the receivership order. Enforcement against this collateral can be achieved and the secured lender is not required to file a claim in bankruptcy unless there is a shortfall following enforcement of security.

In a court-supervised reorganisation, upon a court's acceptance of the reorganisation petition, a secured creditor's ability to enforce its rights is subject to a stay order. Only the bankruptcy judge may permit enforcement against the security while the stay order is in effect.

6.2 Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the security?

Before enforcing a mortgage, the mortgagee must first provide the debtor with a notice demanding payment within a reasonable period. If the debtor fails to comply, the mortgagee may enforce the mortgage by commencing legal action in court for a judgement ordering the mortgaged property to be seized and sold by public auction, or by claiming foreclosure (taking title over the property). Foreclosure is rarely used, however, given the conditions required to be satisfied. In each case, a judgement debt is required to be obtained before enforcement.

Enforcement of a pledge can be made without a court order. If the debtor fails to comply with a notice from the pledgee to make payment, the pledgee may sell the pledged property by public auction.

6.3 What processes, other than court proceedings, are available to seize the assets of the project company in an enforcement? For instance, is contractual enforcement (such as receivership) recognised?

Thai law permits enforcement of pledges and contractual quasi-security arrangements without the need for court proceedings. In practical terms, however, enforcement may be difficult for lenders without court assistance and cooperation from the relevant parties, eg, the account bank with which the assigned bank account is held.

7.1 What, if any, are the restrictions, controls, fees and taxes on remittances of investment returns or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?

Outward remittance of funds, such as repatriation of dividends and profits, loan repayments and interest, after tax deduction, may generally be made freely through commercial banks in Thailand provided documentary evidence of the underlying payment obligation, such as a copy of the credit agreement, is supplied to the commercial bank.

7.2 Can project companies establish and maintain onshore foreign currency accounts and/or offshore accounts in other jurisdictions?

Opening and maintaining onshore foreign currency accounts and offshore accounts in other jurisdictions is not prohibited but is regulated by the Bank of Thailand as follows:

(a) for opening and maintaining onshore foreign currency accounts, if the source of foreign currency is offshore, there is no limitation on the amount which may be deposited and maintained. If the source of foreign currency is onshore, the amount deposited and maintained must not be greater than the amount of any corresponding foreign currency liability, eg, foreign debt, or $5 million if there is no foreign currency liability; and (b) for opening and maintaining offshore accounts in other jurisdictions, approval of the Bank of Thailand is required.

8.1 Is there a public-private partnership (PPP) act or similar statute authorising PPPs, and are both greenfield and brownfield PPP projects permitted?

Yes. The existing PPP Act (Private Investment in State Undertaking Act) was enacted in 2013 replacing the Private Participation in State Undertaking Act which, unlike the new PPA Act, was not enacted with the intention of providing a legal framework for PPPs. The PPP Act covers government projects with an investment cost of THB1 billion or above. The PPP Act is silent on the issue of whether only greenfield projects fall within its scope.

8.2 May a concessionaire grant security interest in the project to its lenders and, if so, is consent of the government or contracting authority required?

Yes. Note that the concession contract itself can be used as quasi security by way of conditional assignment of the concession to the lender(s), and would generally be included in the security package when applying for project financing. Consent of the government or contracting authority is required.

9.1 Is reinsurance in the international market commonly seen on project finance transactions in your jurisdiction and are cut-through clauses permitted

Yes, reinsurance is commonly seen. Cut-through clauses are permitted, subject to their compliance with a number of conditions required under the Civil and Commercial Code for third-party contract rights.


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Maythawee Sarathai
Mayer Brown JSM

About the author
Maythawee Sarathai is a partner at Mayer Brown JSM Thailand. With more than 10 years' experience, Sarathai has advised on a broad range of matters relating to investment in Thailand, including project development, mergers and acquisitions, corporate structures and registrations. He advises investors in the energy and oil and gas sectors, including on applications for oil and gas concessions and acquisitions, and investors in independent power projects. Sarathai has acted extensively for bank steering committees in negotiating and documenting multi-bank cross-border corporate workouts and court supervised reorganisations in Thailand. He also advises creditors, liquidators, planners, plan administrators, special managers and debtors on all aspects of both contentious and non-contentious corporate lending, restructuring and insolvency.


Ben Thompson
Mayer Brown JSM

About the author
Ben Thompson is a partner in the Singapore office of Mayer Brown's global projects group. He has more than 10 years' experience in project financings throughout Asia – with six years based in Bangkok. He has advised both sponsors and lenders on a number of high profile power projects in the region, including the Nam Ngiep 1, Nam Ngum 3 and Xe Pian Xe Namnoy hydropower projects in Laos PDR and the Nong Saeng and Rojana IPP projects in Thailand. Thompson also has substantial experience in Indonesia and has been advising on a number of projects in Myanmar. He was named a 'rising star lawyer' in Singapore and Thailand by IFLR1000 2013, 2014 and 2015.