April 26, 2011

Thirachai Phuvanatnaranubala

Secretary-General

Securities and Exchange Commission, Thailand

Chairman

ASEAN Capital Markets Forum

Thai Baht Bond Markets

2

Outlines

I. Market overview

II. Measures taken to grow the bond market

III. Key development in the future

53 59 65 463 630 725 929 1,361 1,498 1,787

2,211 2,634

3,271 3,397 4,182

5,007

238 278 294 301

356 409 416

396 412 405

489 493

522 518

533

502

134 182 188 178

402 501

538 543 607

548

667

959

1,093 1,164

1,400

1,247

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

THB Billion

Government

State OwnedEnterprise

Corporate

Outstanding Value

3

Pre Crisis Post Crisis

• No need to issue government bond due to continued fiscal surpluses

• Lack of a risk-free benchmark to price corporate bond

• Few issue of corporate bonds • Bank loans were main source

of corporate funding

• Government had to issue bonds to fiscalize financial restructuring and to finance government projects

• Benchmark now available for market reference

• Corporate bond market has become an alternative for corporate funding

• Limited deposit guarantee will open way for more corporate bonds

Source: ThaiBMA

30 THB = 1 USD

Outstanding Value per GDP

4

1 1 1

10

14 15

18

25 2528

3134

38 37

46

50

6 6 6 6

8

8 8 7 7 6 7 6 6 6 6 53 4 4 4

9 10 10 10 10 8 912 13 13

1512

0

10

20

30

40

50

60

% of GDP

Government

State OwnedEnterprise

Corporate

Source: ThaiBMA, NESDB

The proportion of corporate bonds is still low

73

57 54

11

11 12

16

32 34

0

20

40

60

80

100

- - -

Bank loan Bond Equity

%

75

15

-

38

25

47

-

20

40

60

80

100

Bank Loan Bond Equity

%

5

Corporate Financial Structure

Thai Financial Assets

Source: IMF, World Federation of Exchanges, BIS

Financial Structure of Siam Cement Group

Source: Stock Exchange of Thailand

Proportion of bank loans has decreased steadily

Large listed cos. (such as Siam Cement Group) continually switched to bond financing after 1997 crisis

Profile of Corporate Bond Issuers

6

Bank 20%

Fin9%

Energy26%

Othe rs 14%

Transport6%

Prope rty10%

ICT4%

Cons truc t Ma te ria l11%

28

187

29 15 18 43 10 18 51 22 107

74 75 9

133

141

91 89

152

138

261 177 228

199

389

209

-

100

200

300

400

500

Bank Non-bank

THB Billion

Source: Securities and Exchange Commission Source: ThaiBMA

Issuance Value Classified by Business Sector Outstanding Value Classified by

Business Sector : 2010

The market gained momentum after 1997 crisis, starting with banks recapitalization bonds in 1998-1999

Issuance is dominated by bank and energy sectors, reflecting their weights in the stock exchange

Profile of Corporate Bond Holders

7

Source : ThaiBMA

Note : /1Financial Institutions include EXIM, GHB, GSB banks

/2 Including life and non-life insurance companies

/3 Including government pension fund, provident funds and social security fund

/4 Including the government sector, foundation, co-operatives, temples etc.

Corporate Bond Holders: 2010

Ind ividua ls45%

Othe rs /4 12%

Corpora tions 5%

Contrac tua l Saving Funds /3

13%

Mutua l Funds10%

Insurances /2

10%

Com Banks & Fin Ins ti . /1

6%

Almost half are held by individuals who buy-and-hold

Daily Average Trading Value

8

1,419 4,356 5,434 7,290 6,460 6,645 10,731

16,870

42,115

69,421

58,820

67,673

207 842 567 459 313 272

449

345

293

385

325

179

134 297 368 359 799 429

319

387

582

489

710

775

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

THB Million

Government

State OwnedEnterprise

THB Million

Corporate

Source: ThaiBMA

Market liquidity took time to improve

Trading active on government bonds

Corporate bonds still inactive due to relatively small issue size and investors’ buy-and-hold strategy

30 THB = 1 USD

31 2732

26

69 7368

74

0%

20%

40%

60%

80%

100%

- - -

Dealers to Clients Inter Dealers

Profile of Trading Participants

9

Insurances 3%

Othe rs 13%

Fore ign co . 11%

Dom es tic co .15%

Mutua l Funds55%

Gov. Pens ion Fund and Soc ia l Securi ty Fund

4%

Source: ThaiBMA

Dealers to Clients: 2010 Outright Trading Value

A major part of total transactions came from trading value between dealers and their clients

Mutual funds are major players in the secondary bond market

10

Outlines

II. Measures taken to grow the bond market

I. Market overview

III. Key development in the future

Developing benchmark yield curve

11

Enacting law allowing government to issue bond during a fiscal surplus

Regular issuance of 5, 10, and 15-yr government bonds

Pre-announcement of auction calendar on a quarterly basis without cancelation

Reopening of benchmark issues to ensure criticalissue sizes

Active two-way quotation by primary dealers

Introduction of Primary Dealer System

12

Introduced in 2000, currently there are 9 PDs in the market

Biannual performance review by the Bank of Thailand

PDs’ obligations:• Always bid for their shares of government securities allotted in the

primary market

• Act as market makers and to provide daily two way quotations for outstanding government bond issue

PDs’ privileges:• Rights to summit Non-Competitive Bids (NCB) on behalf of their

customers

• Act as advisors to the Ministry of Finance for planning of government bond issuance and to Bank of Thailand in developing the bond market

Reforming Bond Issuance Rules

13

In 2001, introduced 1-year shelf approval and shortened timeline for filing from 45 days to- 15 days for listed company- 30 days for non-listed company

In 2006, extended shelf filing from 1 to 3 years- Initial filing became effective within 30 days- Subsequent filings became effective within 3 days

In 2009, further shortened timeline for filing :For PO, - Initial filing, shortened from 30 to 14 days- Subsequent filings, shortened from 3 to 1 dayFor PP, shortened from 3 to 1 day

Improving Disclosure Requirement

14

Changing from merit-based to disclosure-based

Risk assessment from financial and operational perspectives

must be disclosed in greater details

Large financial exposures must be highlighted with

accompanying explanation and assessment of their

impacts on the company’s financial position

Developing Accounting Standards and Quality Assurance of Audit

15

Quality Assurance of Audit

▪ Audit firms of listed companies are required to have quality assurance system according to the international standards

▪ SEC conducts regular inspection on Quality Assurance

Accounting Standards

▪ International Reporting Standards (IFRS) to be fully adopted in Thailand

▪ Currently, there are 19 Thai accounting standards in accordance with IFRS, most of which will take effect this year and the rest by 2013

Promoting Asset Management Business

16

Minimum fund size of THB 50 Billion (US$ 1.5 Billion) was lifted

Auto approval of mutual funds with non-complicated investment policy

Allowing more types of assets for fund investments such as structured notes and interest rate derivatives for hedging purpose

Allowing mutual funds to participate as bond lenders in repo transaction

Enhancing Market Transparency and Surveillance

17

Market Transparency SEC designates Thai Bond Market Association (ThaiBMA) to be bond

information center, pricing agency All corporate bonds must be registered at ThaiMBA where public

disclosure is centralized Dealers must report daily trading transactions to ThaiBMA for further

disclosure to the public Closing prices are screened daily by ThaiBMA before announcement

for use in marking to market

Market Surveillance ThaiBMA conducts off-site market surveillance on daily trading

transactions, and also on-site inspection of dealer members If there is a breach of securities law, ThaiBMA has to inform SEC

immediately

Allowing Foreign Firms to Issue Local Currency Bond

18

Began in 2004, outstanding value as of 2010 was US$ 2.4 Billion

Annual quota set by the Bank of Thailand is increased this year from US$ 1.6 Billion to US$ 4.8 Billion due to high demand

Issuers include ADB, JBIC, Citigroup, Deutsche Bank, Korea Exim Bank, etc.

SEC works closely with the Ministry of Finance and the Bank of Thailand to revise the annual quotas and conduct market consultation with issuers

Development of New Products

19

Government is planning to issue inflation-linked bond to the public in Q3 this year

PTT group, the Thai largest conglomerate, has successfully pioneered the following bonds in local market Q4 2010:

• Century bond • Foreign currency bond

The rules for Islamic Sukuk bonds was issued in January this year

SEC is also drafting rules to allow municipal authorities to issue bonds, expected to be announced this year

20

Outlines

III. Key development in the future

I. Market overview

II. Measures taken to grow the bond market

Enhancing Liquidity of Corporate Bonds

21

Amending rules to allow reopening of old issues for corporate bonds in the same way as government bonds

Encouraging corporate bond underwriters to act as market makers in a secondary market

Exploring the possibility of using corporate bonds with the highest rating as collateral for repo transaction

Making regular consultation with stakeholders to improve related rules

Supervision of Credit Rating Agencies

22

To increase competition and strengthen credit rating business,

SEC plans to do the following by H2 this year:

Allowing foreign CRAs to provide ASEAN scale rating for domestic bond issuance

Reviewing rules governing CRAs to be fully in line with the new IOSCO Code

To waive rating requirement for bond offering to high net-worth individuals and institutional investors

Providing Investor Education

23

Introducing “product fact sheet” that highlights the main features in short simple language to help investors understand the investment risks

“Financial Literacy” has been set as a national agenda involving various agencies and will be rolled out nationally this year. It will cover all types of securities, equities and bonds included.

Developing Hedging Instruments

24

Interest rate futures were launched Q4 last year but as yet no active trading

Major problems are:

• Major investors still hold bonds to maturity• May have to review capital charges for banks’ OTC

interest rate swap with their counterparties• Banks hold bonds mostly in long term book, with no

need to mark to market their portfolios

SEC is coordinating with TFEX (derivative exchange) and the Bank of Thailand to address these issues

Integrating ASEAN Capital Markets

25

Paving the way to launch debt issues simultaneously across ASEAN countries by using the same set of documents

Measures that are being worked on:

• Adoption of a common ASEAN Disclosure Standards

• Additional requirements by each jurisdiction caused by different business and legal environments (Plus Standards) are to be systematically reduced

• Mutual recognition of credit rating agencies within ASEAN

• Acceptance of the ASEAN scale rating

26

Q & A