Baht market bucks bond trend
BONDS: Thailand now South-East Asia’s biggest domestic debt market
Source: Reuters/Kerek Wongsa
Thailand has emerged as South-East Asia’s biggest domestic debt market this year, underlining the country’s resilience to global capital outflows.
In the first nine months of the year, baht bond sales totalled Bt385bn (US$12.3bn), up 8% year on year, according to Thomson Reuters data. The figure is ahead of the S$13.6bn (US$10.9bn) issued for the period in Singapore dollars and M$32.0bn (US$10.1bn) in Malaysian ringgit.
Singapore’s local currency market shrank 47% year on year in the first nine months of the year, while ringgit bond sales declined 41% year on year. Bond sales in Philippines pesos have fared the worst, falling 71% year on year to just Ps71bn (US$1.6bn).
Other than the renminbi, the baht is the only Asian currency market to register an increase in bond issues this year, casting aside fears that this summer’s reversal of emerging-market investments would prevent local companies from accessing capital.
“We had projected at the beginning of this year that the primary corporate bond market would issue about Bt250bn in 2013, but we have already hit Bt280bn,” said Ariya Tiranaprakij, executive vice president of Thai Bond Market Association. “This is going to grow as there are corporate borrowers waiting to issue in the last quarter.”
Thailand was not immune to this summer’s global portfolio rebalancing, but it has remained stable relative to other markets.
Foreign investors sold more than Bt90bn of Thai Government bonds per month in May and June, according to the Thai Bond Market Association, pushing up yields on long-term paper. In June alone, Thai stocks tumbled 12% amid fears of an unwinding of US quantitative-easing measures.
Benchmark yields and, therefore, funding costs have recovered quickly. The 10-year government benchmark has widened 59bp since US Federal Reserve chairman Ben Bernanke spoke on May 22 of a gradual end to monetary stimulus, versus 81bp in Singapore, 61bp in Malaysia and 237bp in Indonesia.
Analysts’ fears for the Thai economy eased after a growing current account deficit in the second quarter was reversed in August.
Ariya noted that the outflow of funds had been reversed in September, when a net inflow of Bt71.75bn in government bonds was recorded.
Much of the increased activity is attributable to state-owned enterprises, a result of the government’s increased public spending programme. Yingluck Shinawatra’s government itself is planning a sale of Bt2trn of infrastructure bonds to fund further development projects.
The leading state-backed issuer this year has been Bank for Agriculture and Agricultural Cooperatives, which has raised a total of Bt40bn of bonds backed with government guarantees.
Private-sector corporations and financial institutions are expected to add to the Bt280bn total issued so far this year, although they may fall short of 2012’s Bt500bn – stemming, in part, from a rush to issue Tier 2 bank capital bonds before stricter Basel III requirements were imposed this year.
Offerings of Bt100bn–Bt150bn more in corporate bonds are expected in the last quarter. These will include debut issues from CP All, which plans to sell up to Bt90bn of bonds to refinance a bridge facility for its acquisition of Siam Makro. Most of its requirements will be met this year, with the first Bt40bn bond due to be sold this Thursday.
PTT and Siam Cement, both regular issuers, are also expected to tap the market before the end of the year.
Underpinning the bustling market is the large pool of domestic liquidity. Although investors are now asking for higher yields, retail investors are mainly seeking absolute yields that beat low bank-deposit rates. Individual investors hold more than half of Thailand’s outstanding bonds, and are a major investor base for high-quality issuers.