Local market seen as potential bond hub
Thailand has high potential to be a fundraising hub for bonds issued by neighbouring countries as demand grows for fund mobilisation in line with robust Asean economic growth, says Standard Chartered Bank.
Well-equipped infrastructure gives Thailand’s bond market an edge in the race to become the centre for bond issuance for neighbouring countries, particularly Laos, Cambodia and Myanmar, said Aaron Gwak, the bank’s regional head of capital markets.
Laos often floats sovereign bonds in Thailand because of plentiful liquidity in the country’s financial market.
“Emerging countries need to spend more time building up their bond markets, which makes the Thai bond market a good choice,” Mr Gwak said.
Although bond issuance from Cambodia, Laos, Myanmar, and Vietnam has been sporadic, there have been several notable issues from those countries. One is the Vietnam-based Mobile World Investment Corporation, which issued US$100 million (3.2 billion baht) in bonds guaranteed by Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank, last year.
In 2017, bonds issued in Asean by both domestic and international issuers were worth $165 billion, rising from $125 billion the year before and $63 billion in 2010, according to Bloomberg.
Mr Gwak said bonds issued in regional currencies have played a greater role after a big chunk of Asean bonds matured.
The positive trend is supported by robust economic growth and greater business activity across the region in trade, investment, and mergers and acquisitions from both domestic and cross-border transactions.
“16 or 17 years ago, if Asean companies wanted to raise dollars, they had to issue bonds in the US or European markets, but 80-90% of dollar bonds are now sold in Asia,” Mr Gwak said.
Against the backdrop of upward-trending interest rates, led by a positive economic outlook for the US and Asean, corporations have prepared to raise new funds to lock in cheap costs by offering longerterm bonds of 5-10 years. Rollover is another method to manage financial costs at a time of rising rates.
Foreign bonds issued in Thailand that are due to expire in the next 18 months amount to about $1 billion, half of which was from South Korea and 30-40% from Laos.
Standard Chartered forecasts that t he US Federal Reserve will raise rates three more times to 2.75% by year-end, up from 1.75% now. Three-month Libor is also expected to surge to 2.75% by the end of the year from 2.32% after last year’s 100-basispoint hikes, while the US 10-year treasury yield is seen rising to 3.1% from 2.97%.
Separately, Standard Charted Bank economist Tim Leelahaphan expects the Bank of Thailand to raise its policy rate twice this year, by 25 basis points each time, as the bank believes that monetary policy at this time is highly accommodative.
Standard Charted is maintaining its forecast for Thai economic growth of 4.3% for this year, unchanged despite the strongerthan-expected growth of 4.8% year-on-year in the first quarter, marking the fastest pace in 20 quarters.