When Thailand opened its doors for foreign issuers to sell bonds in baht, what it actually got was a flood of Korean issuers. Still, that concentration of interest has not bothered anybody so far. Thais get familiar names with high ratings and some diversification, while Koreans make saving relative to other sources of funds.
Source: Reuters/Damir Sagolj
Thai baht banknotes are left by Buddhist believers attending an alms offering ceremony in Bangkok’s shopping district
Three times a year, Thailand’s Ministry of Finance invites foreign entities to apply to issue in baht, with deadlines in March, July and November. It then puts out a list of approvals, usually two months later, specifying the amount issuers can raise and the deadline to do so.
“The considerations for the MoF in deciding whether or not to approve the applications is, one, if the money will be used onshore, two, what the impact will be on the swap markets, and three, if the credit profile is strong enough,” said Augusto King, co-head of debt capital markets for Asia at RBS.
“You’re talking about at least Single A internationally before you can tap the local market. It has to be a very good rating in order to allow onshore investors to buy,” he added.
The most recent round of approvals came on January 9, when the MoF approved seven names. Five were South Korean – Hana Bank, Industrial Bank of Korea, Korea Development Bank, Export-Import Bank of Korea and Korea National Oil Corp. ANZ and Citigroup were the other two to receive approval. It is not known if many others applied and were refused, but anecdotally, it is understood that Thailand has been reluctant to approve European names.
“The Thais are concerned about foreigners taking liquidity from the swap market,” said King. “My last conversation with the MoF indicated that, if you’re thinking of bringing a European name, a bit more is needed considering it.”
Many of the names in the January round were familiar ones because Kexim, IBK, KDB and Hana had all sold baht-denominated bonds prior to 2012. “I don’t think they’re encouraging Korean issuers, per se,” said another banker. “They are encouraging foreign issuers, but it is Korean issuers that have been applying and getting picked up.”
The seven approved entities may raise a combined Bt66bn (US$2.15bn). This has already proven a successful niche because nine foreigners issued in baht in 2011. In January 2012, Hana Bank raised Bt10bn via a two-tranche issue – Bt8bn in three-year bonds at 4.68% and Bt2bn in seven-year paper, at 4.49%. Kasikorn Bank and Standard Chartered were joint leads on the deal. Fitch Ratings Thailand assigned an AAA(tha) rating to the bonds. Earlier in the month, Woori Bank raised Bt5bn via a three-tranche issue – three-year paper of Bt2.5bn at 4.08%, four-year of Bt1.5bn at 4.22%, and seven-year of Bt1bn at 4.47%. HSBC was lead on the deal, also rated AAA(tha).
One banker said, for the Koreans, the deals had offered savings on an asset-swap basis, bearing in mind the combination of the local currency fixed rate required to get the deals away and the cross-currency swap rate.
“It’s all to do with savings,” he said. “If they can save, they will do it; if they can’t, they don’t.” He cited the example of Shinhan Bank, which was granted approval in a previous round, but did not bother as the pricing economics did not stack up. “It was a function of after-swap costs. As Korean banks fund across so many jurisdictions, it’s purely determined by where they get the bang for their buck.”
The market’s depth has impressed bankers. “Ten billion baht, as Hana did, is not a small amount,” said one banker. “It was done relatively easily, with a long tenor, which is rather rare in these markets.” However, the long tenor was part of the appeal for local investors, who were keen to diversify the maturity of their portfolios. “That was clearly something that appealed to investors. From a credit perspective, Thai investors have been longstanding supporters of Korean credit.”
For the MoF, allowing foreign issuers in allows it to gain depth in its domestic corporate bond market. However, in the past, approved foreign entities have often used only part of their allowances, reflecting that both the bond and swap markets need to be aligned for issues to make sense. Thailand will be keen to see allocations used in full this year and it will be no surprise if a majority of it is related to familiar Korean names.
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