Thai borrowers look set to follow Siam Commercial Bank’s (SCB) recent return to the US dollar bond market after a prolonged absence, predict debt capital market bankers, although the domestic market will remain the primary source of funding for the country’s borrowers.
On March 12 SCB priced US$600 million of 3.375% five-year bonds through bookrunners Barclays Capital and Citi. The transaction marked the first US dollar bonds to be issued from Thailand since May 2011, in a deal also issued by the Thai lender.
Market volatility has risen in the months since, and the resulting widening in bond spreads has kept Thai companies away from the international bond market. In January 2011, the Asian Investment Grade Index was trading in a range of 105-120 basis points (bp). Spreads peaked at 276bp in October and has dropped back to the 140bp this year.
“Generally speaking, most Thai banks continue to have access to good domestic liquidity, and the volatility last year kept many issuers out of the international markets,” said Duncan Phillips, co head of Asian debt syndicate at Citi. “This year, with far greater macro stability, and an ongoing rally in credit, there is an opportunity for Thai issuers that want to raise US dollars directly.”
While US dollar conditions have been challenging, Thai borrowers have been able to plump for their domestic baht bond market instead.
“From a corporate bond perspective the Thai baht market has grown in leaps and bounds and in terms of liquidity and competitiveness. That is why you don’t see as much US dollar issuance,” said Ling Peng Meng, regional head of capital markets for Southeast Asia at Standard Chartered.
Year-to-March 16, US dollar-denominated Thai debt capital markets issuance was US$599 million, versus the equivalent of US$3 billion issued in Thai baht over the same period, according to the data provider Dealogic.
For 2011 the issuance volumes were US$1.1 billion and US$9.6 billion, respectively.
The improvement in US dollar funding costs in recent weeks is expected to prompt other Thai borrowers to consider a return to the US dollar market. One possible candidate is Bangkok Bank, which last issued a US$1.2 billion dual-tranche bond issue via Morgan Stanley in October 2010.
Increasing demand for US dollar liquidity is also set to spur acquisition-related financing. Thai corporates are acquiring assets around the region, which is increasing their need for hard currency. Recently announced Asean acquisitions include Siam Cement’s US$135 million offer for Indonesia’s Boral and Asiasoft Corp.’s US$8.6 million bid for Indonesia’s CIB Development.
“Thai corporates are going into the region and making foreign acquisitions, especially in Indochina. As a result the need for dollar funding has increased,” says Ling. “They can either go to the bank, issue Thai baht [bonds] or issue dollar bonds. We see the potential where Thai banks are raising US dollars and using the US dollar liquidity to support their clients.”
“Traditionally, it is quite common for Thai banks to fund their US dollar needs through the swap market. In addition, the US dollar bond market will offer them an alternative funding avenue.”