Thai corps to seize offshore opportunities on investment relaxation

Thai exporters who are keen to expand their presence internationally can do so in the third quarter as the nation’s central bank seeks to relax financial outflows, believe analysts.

  • 07 Jun 2012
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Restrictions on Thai individuals and exporters who are keen to invest or expand into overseas markets will gradually be lifted by the Bank of Thailand (BoT) in the latter half of 2012.

According to the Bangkok Post, BoT plans to ease regulations for cross-currency investment made by individuals in equity, debt instruments and derivatives in overseas markets.

Market participants voice that this is a positive development and is in line with Thailand’s plan to gradually relax its capital accounts.

Part of the relaxation will allow individuals who wish to invest offshore through brokers or private funds to invest up to US$5 million without having to seek prior approval from the central bank.

Corporate entities will also be able to invest up to US$50 million with the BoT’s approval provided they can show total assets of over THB1 billion (US$31.8 million). Otherwise, the same US$5 million limit will apply.

“I think what they are doing is a very natural step. Countries that have very large build-up of reserves will naturally encourage their own corporates to go out and procure assets to internationalise the economy, said Rahul Bajoria, regional economist at Barclays to Asiamoney PLUS in a telephone interview on June 6. “The BoT’s foreign reserves have gone up quite dramatically in the last four years and there is quite a bit of trade surplus.”

The deregulation plan is roughly divided into two phases:

The first phase will focus on easing procedures and increasing the eligible amount of funds for investment and lending abroad, as well as expanding the types of eligible entities for foreign currency investment and types of eligible assets.

Under the second phase, additional permission will be granted for different types of foreign exchange transactions.

As a result of this, experts believe that Thai exporters will be the keenest ones to make use of the investment opportunities presented, beside asset managers who are already relatively active in offshore markets.

“We will probably see Thai corporates, especially those that are doing quite well in the export markets, look to expand their horizon offshore,” said Bajoria. “In the next one to two years, it is likely we will see the petrochemical sector being the most active, because they would want to make sure they have enough resources.”

“There are also asset management companies within Thailand who would probably use this opportunity to diversify some of their risks from the current Thai asset market into regional markets,” he added.

While this development is viewed as positive, analysts note that retail investors will remain cautious and prefer to keep their cash onshore, as domestic investment returns are quite attractive.

“Thai investors are still very conservative and the offshore investments that we have seen have mostly been in short-term bond funds, like Korean bonds as the currency risk is hedged,” said Parson Singha, chief market strategist at HSBC Thailand to Asiamoney PLUS in a telephone interview on June 6. Even with further regulatory relaxation, I don’t see a very quick take-up by local investors.”

As previously reported by Asiamoney PLUS, the trend among Thai investors to hold Korean debt due to the favourable yield pick-up is reversing as they seek better returns domestically.

“Essentially, as an emerging market, the domestic Thai market is more attractive to domestic investors than other foreign markets,” said Ramya Suryanarayanan, economist at DBS to Asiamoney PLUS in an email reply to questions. “Thus, the expected relaxation in regulation is not expected to lead to any exodus of domestic capital.”

Also, the current account balance is anticipated to register a surplus this year and 2013. As a result, the pressure is likely to remain for currency appreciation. DBS predicts that the Thai baht will strengthen 4.8% to 30 per dollar by year-end.

“This is an additional reason why foreign markets are not attractive, as it involves additional currency risk given the Thai baht is expected to appreciate against the US dollar,” added Suryanarayanan.

Economists around the region believe it is crucial for the BoT to remove the red tape placed on its currency as well as this will complement other regulatory relaxation exercises.

“Making the currency convertible even more than what it is right now might be something they need to look into,” said Barclays’ Bajoria. “This will improve the liquidity in the domestic foreign currency market.”

“These are the kinds of measures that you can expect to keep coming out from not only Thailand but from other countries as well because these are the necessary roadblocks that need to be removed in order to ensure a free flow of capital across Asean (Association of Southeast Asian Nations) going into 2015,” he added.

From January to April, Thai investment in foreign currency assets totalled US$9.97 billion, including US$4.4 billion worth of direct investment and lending and US$5.5 billion in investment in equities.

  • 07 Jun 2012

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2 HSBC 38,447.58 227 9.29%
3 JPMorgan 34,744.34 142 8.40%
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5 Deutsche Bank 18,270.77 72 4.42%

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1 JPMorgan 13,268.07 33 6.30%
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1 Citi 13,617.40 57 11.05%
2 JPMorgan 12,607.77 55 10.23%
3 HSBC 9,327.72 50 7.57%
4 Barclays 8,643.78 30 7.02%
5 Bank of America Merrill Lynch 6,561.15 18 5.32%

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Rank Lead Manager Amount $m No of issues Share %
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5 Citi 95.36 35 5.16%

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1 UniCredit 3,966.12 27 13.01%
2 SG Corporate & Investment Banking 2,805.90 16 9.20%
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4 Citi 2,526.98 15 8.29%
5 HSBC 1,663.71 16 5.46%

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1 AXIS Bank 5,944.45 123 18.53%
2 HDFC Bank 3,792.05 100 11.82%
3 Trust Investment Advisors 3,390.86 145 10.57%
4 Standard Chartered Bank 2,299.63 31 7.17%
5 ICICI Bank 1,894.86 51 5.91%