Positioning Thailand's Bond Market
21
Project Funding For Infrastructure Development Project Funding For Infrastructure Development in Bangkok Positioning Thailand’ s Bond Market September 2010 Euromoney Conference Euromoney Conference London, UK
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Positioning Thailand's Bond Market
Transcript of Positioning Thailand's Bond Market
Project Funding For Infrastructure DevelopmentProject Funding For Infrastructure Development in Bangkok
Positioning Thailand’s Bond Marketos o g a a d s o d a e
September 2010
Euromoney ConferenceEuromoney ConferenceLondon, UK
Signs of recovery (Monthly data : January 2008 – July 2010)
180186
19076 75
8055.7
60
INVT+CONS rebounded Confidence regainedProduction resumed
180
170
18075
70 47.350
150
140
150
160
Private Investment Index55
50
60
Capacity Utilization34.4
30
40
Business sentiment Index
80 718 03719,000
140
Jan‐2008
Jan‐2009
Jan‐2010
Private Investment Index 50
Jan‐2008
Jan‐2009
Jan‐2010
Capacity Utilization 30
Jan‐2008
Jan‐2009
Jan‐2010
Business sentiment Index
137140
80.779.380
17,37018,037
15,000
17,000
133
137
135
71 5
75
11,000
13,000
125
130
71.5
70
Jan‐200
8
Jan‐200
9
Jan‐201
0
Consumer Confidence Index10,425
9,000
Jan‐200
8
Jan‐200
9
Jan‐201
0
Exports (BOP basis, Mil USD)121
120
Jan‐2008
Jan‐2009
Jan‐2010
Private Consumption Index
Source : Bank of Thailand, University of Thai Chamber of Commerce1
Fiscal Stimulus averaged 5% of GDP(FY2009 – FY2011)
TKK 2012 : 1,296 Billion Baht(CY2008 – CY2012)
8%600Additional public borrowing
Budget Def icit
(TKK 2012)
Billionbaht
Logistic
Others15012%
80605 8%
6%
% to GDP (RHS)
Billion Baht
Logistic37029%
C it
12%
Public Health1088%
605.8%
4.9%4.5%
400
CommunityInvestment
14111%260
3.6% 4%
Agriculture22718%
Energy157
Education14311%1.7% 1.8% 2%
200
15712%
0 146 165 441 233 420 420
Source : Public Debt Management Office, Ministry of Finance2
0 146 165 441 233 420 4200%0
2006 2007 2008 2009 2010 2011 2012
Huge stimulus package resulted in 10‐year high GDP growth despite political turbulencep
NESDB (23 Aug 2010) doubled its 2010 GDP growth forecast from 3.5% to 7.5% due to higher‐than‐expect export and investment.
12%
9%
12%Real GDP % growth (Q‐on‐Q) and GDP current price (Billion Baht)
8 530 BB
9,080 BB 9,050 BB
10,000.9 BB
6% 6%
5%6%
4%
8%7,850 BB
8,530 BB
3%
0%
4%
US financial Crisis
Sti l k
‐4%‐5%
‐3%
‐4%
Stimulus package : TKK 2555
‐7%‐8%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
GDP % Growth (Q‐on‐Q)
3
2006 2007 2008 2009 2010
IMF foresees that Thailand will enjoy strongest rebound among ASEAN–5 (excl China & India)Huge stimulus pays off
15% change (Y‐on‐Y)
10
Chi
Real GDP (year on year percentage change)
57%
China
India
0
‐52008 2009 2010F 2011F
China India Hong kong Korea Indonesia Malaysia Philippines Vietnam Thailand
‐2.3%
China India Hong kong Korea Indonesia Malaysia Philippines Vietnam Thailand
Source : World Economic Outlook Database, IMF, 20104
Effective Management in Stimulus Package leads to
LOWER Public Debt to GDP in Long run
18,738,150 MB 47 8%
48.7% 48.9% 48.7% 48.2% 18,738.15 BB, ,
45.2%46.3%
47.8%47.0%
45.4%
43.3%43.8%
37.3% 10,000.90 BB
2008
2009
2010
ƒ
2011
ƒ
2012
ƒ
2013
ƒ
2014
ƒ
2015
ƒ
2016
ƒ
2017
ƒ
2018
ƒ
2019
ƒ
Source: PDMO, as of SEP 10 5
GDP (Current price, MB) Public Debt to GDPBillion Baht)
External Balance Strong: ST Debt low and well covered by Reserves
M USD %
L t
60
80
90,000
120,000 Long-termShort-term
External Debt/GDP
72%
20
40
30,000
60,000
27%
6
00
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1 2010
Consensus: Thailand’s fundamentals remains sound and improving in spite of widespread concerns with political situationin spite of widespread concerns with political situation
Fitch’s Thailand Analysis* MoF (Japan)’s Investor Survey** ?• Political stability
• Competence of the economic management team• Strong external accounts positions
Effi i d bili f h fi i l
Strength• External Financial position remains strong,
y ?
• Efficiency and stability of the financial system• Foreign exchange reserves• Asset quality of financial institutions• Policy consistency or rigidity
stronger than most in BBB• Sound banking system, strongest in BBB group• Economy recovered (GDP revised up to
Foreign currency regulations
Economy recovered (GDP revised up to 6.7%) despite global economic downturn AND political turmoil Problematic factors of doing business***
Government instability/coupsRestrictive labor regulations
Poor public healthPoor work ethic in national labor force
Inadequately educated workforceInflation Weakness
• Political uncertainty (although yet to affect credit)• Concerns with medium term fiscal position
Inadequate supply of infrastructurePolicy instability
Access to financingTax regulations Crime and theft
Tax rates Government instability/coups Concerns with medium term fiscal position
Remarks: * Fitch’s Thailand Report, April 2010
**MoF (Japan) Survey of factors affecting investors
0 5 10 15 20 25 30
Corruption.Inefficient government bureaucracyInadequate supply of infrastructure
Philipines Indonesia Thailand
confidence, by order of priority
***Respondents asked to rank most problematic factors, Global Competitiveness Report 2009-2010 7
Economic growth reboundedConfidence regainedMomentum restored
Credit Rating is Yetto be “upgraded”
AA+Aa1
AAAAaa 15%• International Reserves/ ST External Debt Ratio < 1• NPLs : Commercial Banks: 47%, Finance Companies: 67%• Financial Markets Imbalances: Bond 12%, Equities 24%, Bank Loans 128% (as % of GDP)
• International Reserves/ ST External Debt ≈ 4.5 (as of June 2010)• NPLs: Commercial Banks: 5%, Finance Companies: 12%•Balance of Financial Markets Achieved: Bond 65%, Equities 66%, Bank Loans 82% (as % of GDP)
% GDP (growth)
AAAa2
AA‐Aa3
Aa1
10%
( )• Absence of Social Safety Net• Absence of Bankruptcy laws and deposit guarantee
( )• Universal Coverage for Health Care Increased to 97% of Total Population• Bankruptcy law and The Deposit Protection Act were established
A‐A3
AA2
A+A1 5%
0%pre‐crisis
?
BBB+Baa1
BBBBaa2 ‐5%Momentum restored
BBB‐Baa3
BB+Ba1
BBBa2 BB
‐10%post‐crisis
recoveryInvestment Grade
•IMF Loan paid
Q 1 / 1995
Q 2
Q 3
Q 4
Q 1 / 1996
Q 2
Q 3
Q 4
Q 1 / 1997
Q 2
Q 3
Q 4
Q 1 / 1998
Q 2
Q 3
Q 4
Q 1 / 1999
Q 2
Q 3
Q 4
Q 1 / 2000
Q 2
Q 3
Q 4
Q 1 / 2001
Q 2
Q 3
Q 4
Q 1 / 2002
Q 2
Q 3
Q 4
Q 1 / 2003
Q 2
Q 3
Q 4
Q 1 / 2004
Q 2
Q 3
Q 4
Q 1 / 2005
Q 2
Q 3
Q 4
Q 1 / 2006
Q 2
Q 3
Q 4
Q 1 / 2007
Q 2
Q 3
Q 4
Q 1 / 2008
Q 2
Q 3
Q 4
Q 1 / 2009
Q 2
Q 3
Q 4
Q 1 / 2010
Q 2
Q 3
Q 4 / 2010
BB‐Ba3 ‐15%
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Thailand’s credit rating by Moody’s Thailand’s credit rating by S&P
Thailand’s GDP growth Y‐O‐Y
8
The Rude Awakening1997 Asian Financial Crisis
Imbalanced Capital Market
128%140%
Non‐existence of Bond Market (10% of GDP in 1997)
% GDP (share)
105%
100%
120%
72%
82%
66%
65%60%
80%
52%
39%
20%
40%
7%
0%
20%
992
993
994
995
996
997
998
999
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
(Q2)
10%
1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2
2010
Bank Loan : GDP Equity Market : GDP Bond Market : GDP
9
From Forced Development toBond Market EfficiencyBrutal Transition
BondMarket Development Bureau PDMO
100%10Post Crisis – 2000: V l O i t d
2007 – 2010 : D l t O i t d
Bond Market Development Bureau, PDMO
10,000
%
80%8
Volume Oriented
Bond Market Capitalization tripled Government Bond’s
Outstanding grew by 50 times
Development Oriented
Regular Benchmark Issuance New Product Development
Pro‐active Bond Market 8,000
65%
60%6
Baht
DP
Government Bond MarketShared jumped from 3% in 1997 to 44% in 2000
Management (BoT and PDs)
(sha
re)
Baht
6,000
52%
40%4
Trillion
% to
G
Pre‐Crisis
‐ Illiquid Bond MarketAb f B h k B d
Billion
4,000
% 20%2
‐ Absence of Benchmark Bond‐ Dominated by SoE’s Bond‐ Retail Market
2,000
10%
0%
0%
0 0%0
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
10
Towards SustainableDomestic Bond Market Development2007 Bond Market at Crossroad
Amend Act to allow for government bond issuance for market development purpose
To ensure continuity of Benchmark Bond amidst balance Budgetding Act
Bond Market Development Bureau, PDMO
To ensure continuity of Benchmark Bond amidst balance Budget
Amend Act to allow for Prefunding of large size Benchmark Bond
To built up sizable Benchmark Bond in order to enhance liquidityAmen
dPD
MO
To built up sizable Benchmark Bond in order to enhance liquidity
Increase Benchmark Bond Outstanding 30 year Bond (Insurance Company)
As ent
ucts
Increase Benchmark Bond Tenors
Increase Auction Size
30‐year Bond (Insurance Company)
Floating Rate Bond (Bank)
Step‐up Saving Bond (Retail Investor)Feature
djustm
e
w Produ
Reduce Auction Frequency Step up Saving Bond (Retail Investor)F
Ad
New
One‐on‐one (with PDs)+ Annual Market Dialogue (With PDs and Market Participants)
Quarterly Schedule Announcement and Press Release
‐active
agem
ent
MoF Award – 1. Best Primary Market Contributor for Bond
2. Best Primary Market Contributor for T‐Bill
Pro‐
Man
a
11
Deep and liquid bond market allows government to meet funding Requirements (tripled as a result of stimulus measures)
1,400,000
Consistent Benchmark issuance Benchmark Yield curve
Strategy FY2011Million Baht
1,000,000
1,200,000 Saving Bonds Expand investor base (Retail)
Low Cost Bank Loan TKK Investment
ILB Rising inflation rate trend
Long Term P/N Demand from Insurance
LB 50 yrs bond Lengthen Portfolio
Bank Loan30 000 Bank Loan Bank Loan 60 000
New Instrument, 58,500 800,000
SB 82,230 P/N 49,989 P/N 106,171
P/N 70,514
T‐Bill134,000 T‐Bill 50,000
Other 120,000
30,000 Bank Loan237,700
Bank Loan 60,000
600,000
Tripled
SB 6 000SB 18,000
SB 80,000 ,
P/N 30,950
P/N 70,514
200 000
400,000
LB193,250
LB223,363
LB383,269
LB443,572
LB440,000
SB 6,000
T‐Bill‐
200,000
Refinance Bank LoanT Bill‐127,000
‐90,000
‐200,000
2550 2551 2552 2553 25542007 2008 2009 2010 2011 12
Market LiquiditySustainable domestic funding source
Lower cost of FundingKey Success indicators
120 130
Lower cost of FundingSizeable Benchmark Bonds to enhance liquidity Popular Benchmark Bonds 5yr & 10yr actively traded
Billion #1 #1285
99
120
36%
Billion
Baht
#127%
21%
28% 5 yr
10 yr 7 yr
#2246
12% 13%
8%
#7#5
#2#2
#57% 6%
12%13%
8%
2007 2008 2009 2010
Well developed Benchmark Bond pays off: Low Cost
8%
Market Concentration of Top 10 most actively traded in secondary market
2550 2551 2552 25532007 2008 2009 2010
despite higher amount
1.2 bps +78%
80%
78%
80%
y
1.4 bps
+70%
76%
223.36 BB383.27 BB 443.57 BB
70%
76%
-- 0.6 bps2007 2008 2009 2010
2008 2009 2010 13
Positioning Thai Bond Market Non Junk Bond Market97% of Bond Market is “A” rated
AAA9%
BBB3%
As of Aug 2010
Issuer Outstanding(Billion Baht)
%
Government 2,403 48%B d
AAA (Corp+Foreign)
6%
4%Government 2,403 48%
Bank of Thailand 957 19%
State Owned Enterprise (AAA rated) 508 10%
C t (AAA t d) 271 5%
BondOutstanding= 5,026
Billion Baht
67%
Gov't + BoT67%
AAA (SoE)10%
Corporate (AAA rated) 271 5%
Foreign (AAA rated) 53 1%
Total 4,192 84%
Billion Baht
(exclude<1 yr tenor)
6%
*<1 year tenor = 1,439 Billion Baht (84% of which is BoT’s Bill)
400SOEs and Corporate spread above Government Bond
300
400
SOE (3 year) Corp AAA (1 year) Corp AAA (3 year)
bps above sovereignp p
100
200
0
100
2006‐Q4 2007‐Q1 Q2 Q3 Q4 2008‐Q1 Q2 Q3 Q4 2009‐Q1 Q2 Q3 Q4 2010‐Q1 Q2 14
Corporate Bond shared 21% of Thai Bond Market*(90% of which are “A” Rated or Higher)
Oth
Energy27%
ICT5%
Others12%
27%
Transportation6%
5%
Property7%
Bank
Financial Institution
10% Bank22%Construction
Material11%
Source: ThaiBMA, as of Dec 09*1,105 Billion Baht 15
Clear Presence in Government Bond Emerging Market Indices
Thai Bond Market in International Perspective
HSBC Asian Local Bond Index Weighting
Sep 2008: Lehman’s Crisis July 2010
China11%
Thailand6%
Taiwan10%
China10%
Thailand8%Si
Taiwan8%
6%
Hong Kong15%Phili i
Singapore15%
8%
Hong KongPhilippines4%
Singapore14 %
15%
India7%
Malaysia8%
Philippines4%
14 %
India
Malaysia9%
4%
7%
Indonesia8%Korea
16%
India7%
Indonesia10%
Korea16%
16
Non Resident Holding in government bond has been doubled in last 3 months
Non Resident Holding in government bondNon Resident Holding in government bond
9.9%12%200,000
Non Resident Holding (Government Bond)
% h f t b d t t di
MB MPC rate hike:Jul 14, + 25 bps
200
Billion Baht
6.6%
8.2%9%150,000
% share of government bond outstanding Aug 25, +25 bpsCurrent level = 1.75%150
Baht
4.5%3.8% 3.7%
5.6%6%100,000100
1.2%
3%50,00050
0%02006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 July Aug Sep
2008 2009 2010
17
Peers Comparison: Relatively high Liquidity in Secondary Market
32.16Hong Kong
1.02
1.03
Korea
Japan
0 61
0.78
Malaysia
Thailand
0.52
0.61
Singapore
Malaysia
0.5
0.51
Philippines
China
0.28
0.4
Indonesia
Vietnam
As of March 2010
0 0.5 1 1.5 2
As of March 2010
18
Initiatives introduced to encourage foreign investment and promote ease of access for foreign investors in Thai government bond market
Si M l i Th il d Phili i I d iSingapore Malaysia Thailand Philippines Indonesia
Restrictions None None None None None
Tax on Interest None None Exempt 20% final tax, with held at
20%, or tax treaty rate
source
Capital Gains Tax None None Exempt None 20%, or tax treaty ratetreaty rate
Custodian MAS, Banks
ADI Require Local
RoSS Require Local
Source: Standard Chartered bank, ThaiBMA19
Project Funding For Infrastructure DevelopmentContact PDMO: www.pdmo.mof.go.thProject Funding For Infrastructure Development in Bangkokp g
Tel: (662) 265 8050
Chakkrit Parapuntakul Director-General [email protected]
Pimpen Ladpli Director of Government [email protected] Market Development DivisionBond Market Development Division
Nattakarn Boonsri Director of Fund Management [email protected] Debt Securities MarketI f t t D l t Di i iInfrastructure Development Division
Paroche Hutachareon Analyst [email protected]
Nakarin Prompat Economist [email protected]
