Thais Plan $10bn Bond Issue To Fund Reforms
Thailand is planning to issue up to $10 billion (£6.2billion) worth of bonds on the global markets to finance restructuring of its financial system, government officials said on Wednesday.
The issue, into what are expected to be tough market conditions, would be to fund a government-owned asset management company that will take over bad assets and some liabilities of the 58 finance companies whose operations have been suspended, and perhaps some bad debts from commercial banks.
The issue would be through the Export-Import Bank and Industrial Finance Corporation of Thailand, two state-owned financial institutions with experience in raising capital overseas. Thailands last big venture into the international capital markets was in April this year, when it raised $600 million in Yankee bonds.
The country has been downgraded by rating agency Standard & Poors since, and the rating outlook remains negative. The spread on this bond, which was not considered a successful issue, has nearly doubled to almost two percentage points over US Treasury bonds since it was launched.
Details of the plan, which is believed to have been based on extensive consultations with investors and economists at the recent International Monetary Fund meeting in Hong Kong, are still being worked out. A full outline of the issue will be presented on October 15, along with Thailands much-predicted scheme to restructure its financial system, officials said.
Bond analysts say that the $10 billion figure, which amounts to approximately 5.5 per cent of gross domestic product, will severely test international appetite for Thai debt over the coming weeks.
If Thailand had difficulty persuading investors to buy its $600 million bond in April, how is it going to persuade investors to buy $10 billion-worth? asked a syndicate manager in London.
Roger Lister, senior analyst at Citicorp Securities in New York, said the move would catapult Thailand into the league of mainstream emerging market bond issuers.
Unlike Latin America, most Asian countries, including Thailand, have until now been relatively small-scale borrowers on the international bond markets. The $10bn bond programme would almost double Thailands outstanding global bond obligations. This will have major repercussions for Thailands international standing, said Mr Lister. Investors want uncertainty priced into bond spreads, which in Thailands case is very high at the moment. Most analysts believe the price tag for financial system restructuring will eventually be in the range of 10 per cent to 15 per cent of GDP, although if capital flows back into Thailand, and interest rates can come down, the ultimate figure could be significantly lower as bad loans would start to come good. Analysts said the success of the bond issue was likely to depend on whether Thailand was able to meet its target of a 1 per cent of GDP fiscal surplus next year suggested by the International Monetary Fund. That surplus is designed to cover interest payments on money the government will have to borrow for its financial system clean-up. The privatisation of state enterprises is another expected source of funds, although the deputy prime minister, Thaksin Shinawatra, said on Tuesday he did not expect a master plan for privatisations to be ready until at least March next year. Most analysts expect the government led by Chavalit Yongchaiyudh, the prime minister, will have called elections by then, thus delaying the privatisation process even further. Copyright Financial Times Limited 1997. All Rights Reserved.