Issuance of bonds set to fall next year

Companies already locked in low rates

Despite projections for a stronger economy in 2016, the fundraising amount through new corporate bond issuance next year is expected to be lower than this year.

Banks have already raised a substantial amount of Basel III tier 2 notes, while many companies already issued bonds to lock in rates because they were afraid of imminent rising interest rates.

The Thai Bond Market Association (TBMA) projects next year’s new corporate bond issuance will be between 521 and 553 billion baht, lower than the 570 billion issued this year, said president Tada Phutthitada.

Corporates issued bonds worth 554 billion baht in 2014.

TBMA chairman Pisit Leeahtam said more small and mid-sized firms would issue bonds next year, and property developers, energy and public utility operators were likely to be the largest bond issuers to finance their business expansion.

Low interest rates would also encourage companies to mobilise funds through the debt market, he said.

The number of corporate bond issuances jumped 49% this year to 134 from 90 last year, said Mr Pisit, adding new bond issuers increased to 38 from 26 in 2014.

Property developers remained the biggest bond issuers this year.

The outstanding value of the Thai bond market in 2015 is registered at 10 trillion baht, up by 7.92% compared with year-end 2014 valued at 9.29 trillion. Government bonds accounted for 75% and corporate bonds made up 25%.

This year’s bond trading value rose 5% year-on-year to 81 billion baht, up from 77 billion. The trading value of government and Bank of Thailand bonds dominated, making up 77% of the bond market’s turnover.

Foreign funds worth 103 billion baht already left the Thai bond market, with the majority of outflows associated with short-selling notes amounting to 81.5 billion baht, reported the TBMA.

Total foreign holdings in Thai bonds were valued at 580 billion baht as of Dec 14, down from 683 billion at the end of last year.

Since Thailand’s economic conditions remain lukewarm, capital outflows from Thailand’s bond market are expected to continue next year given that the Fed is likely to continue raising the fed funds rate, said Mr Pisit.

“But the degree [of capital outflows] is not expected to be severe because the Bank of Thailand has high foreign reserves [to cushion against capital flight],” he said.

Foreign holding of domestic bonds is valued at 570 billion baht, less than 4% of the central bank’s foreign reserves, said Mr Pisit.

The central bank’s foreign reserves stood at 5.6 trillion baht (US$157 billion) as of Dec 4, with a net forward position of $11.8 billion.

The Fed’s continued rate normalisation, anticipated to occur twice in 2016, might put pressure on the Thai central bank to raise its policy interest rate as greater weight is put on foreign exchange rather than demand and supply sides, he said.

The Bank of Thailand’s interest rate is likely to be kept steady at 1.5% in the first half next year, possibly rising in the second half if Thailand’s economic recovery picks up as expected, said Mr Tada.