Interest rate govt pays to borrow money increasing under burden of financing the rice subsidy program for farmers.
The cost of the rice-pledging scheme, a flagship policy of the Pheu Thai-led government, is undermining demand for bonds issued by the Bank for Agriculture and Agricultural Cooperatives (BAAC). (Photo by Panumas Sanguanwong)
BOND MARKETS & RICE
Rice eating hole in budget, swells bank spread
The rising burden of the rice-buying programme has undermined demand for bonds issued by the Bank for Agriculture and Agricultural Cooperatives (BAAC).
The state-owned bank for farmers has sold about 90 billion baht of debt this year, the biggest local-currency issuer in Southeast Asia, with most of the funds used to buy rice at above-market rates to boost rural incomes.
The lender' s last four auctions have not been fully sold and the spread between its government-guaranteed notes due February 2016 and sovereign paper maturing December 2015 widened eight basis points this year to an unprecedented 34 basis points on Aug 13.
Prime Minister Yingluck Shinawatra's administration lost 137 billion baht in the first year of the programme through September 2012 as it sold the grain, government estimates show. Export rice prices fell 14% this year as global stockpiles climbed to a 12-year high. The losses are credit-negative and could jeopardise the goal of balancing the budget by 2017, Steffen Dyck, assistant vice president at Moody's Investors Service in Singapore, said last month.
"Appetite to absorb this kind of financing, which has become a bit of a controversial issue, basically declined,'' said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse AG, Switzerland's second-largest bank, said in an Aug 13 interview. The bank is a quasi-fiscal instrument and its financial health is very much tied to the government.
After a run of eight successful auctions from October through June, the BAAC failed to meet its sales target at the last four offers, according to data on the Thai Bond Market Association website.
Ms Yingluck backtracked on a plan to lower rice-purchase prices by 20% last month after farmer protests, opting to keep them at a maximum of 15,000 baht a tonne. Around 337 billion baht was spent on buying rice in the first year of the program, and 317 billion baht is expected to be spent in the second year, according to BAAC.
The price of Thai 5% broken white rice, an Asian benchmark, was $505 per metric tonne on Aug 14, compared with $584 at the end of last year, data compiled by Bloomberg show. The 15,000 baht the government pays for rough rice translates into a milled white-rice price of around $750 a tonne, according to estimates by exporters and traders in Thailand.
The rice-buying programme has impaired fiscal transparency and hampers progress toward deficit reduction, Moody's Dyck said. Thailand's debt as a percentage of gross domestic product is 43%, according to data compiled by Bloomberg. That's higher than Indonesia's 25%, although lower than 51% in the Philippines and Malaysia's 54%.
"We stopped buying this issuer as we have concerns about the potential loss amount on the government rice scheme,'' Porntipa Nungnamjai, a fund manager at Krungsri Asset Management said in an Aug 13 interview. "The spread may widen further from here if the bank continues to issue more bonds.''...
...The yield on BAAC bonds due February 2016 has risen 19 basis points to 3.15% since the end of May, according to data compiled by Bloomberg. Because the lenders debt is government guaranteed, the increase will be limited, Teerasan Dutiyabodhi, a senior fund manager at TMB Asset Management, said in an Aug 13 interview.
The yield difference is more than for other state-backed bonds. Bangkok Mass Transit Authority's three-year securities and Government Housing Banks notes due 2015 both yield 20 basis points more than similar-maturity government debt, according to data compiled by Bloomberg.
Sentiment surrounding this bank is not strong due to the huge burden from the rice scheme, Nalin Chutchotitham, an analyst at Kasikornbank Pcl, Thailand's fourth- largest lender by assets, said in an Aug 14 interview. "The spread may widen further.''
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a run of: the same thing happening again and again, many times -
absorb: to deal with changes, effects, costs, etc, in this case to pay a higher cost yourself - รับเอา, รับไว้
administration: the government of a country - รัฐบาล
appetite: a strong desire for something - ความอยาก, ความปรารถนา
auction: a usually public sale of goods or property, where people make higher and higher bids (= offers of money) for each thing, until the thing is sold to the person who will pay most - การขายโดยการประมูล, การขายทอดตลาด
backtrack: to say that you did not mean something you said earlier or say that you have changed your opinion - กลับคำ
balance the budget: to make the amount of money spent equal to the amount available; to spend only the amount of money that is available to spend -
based: living or working in a particular placed; located in a particular place - อาศัย
basically: in the most important ways, without considering things that are less important - โดยพื้นฐาน, โดยแท้จริง, โดยทั่วๆ ไป
basis point: one hundredth of one per cent, used for interest rates, especially interest rates on bonds -
benchmark: a standard that other things can be compared to, for example, to calculate prices - ตัวเปรียบเทียบ; การวัดเปรียบเทียบสมรรถนะเกณฑ์มาตรฐานหมายถึง การทดสอบเพื่อวัดความสามารถในการประมวลผล หรือการทำงานของ โปรแกรมใดโปรแกรมหนึ่ง หรืออุปกรณ์คอมพิวเตอร์ชนิดใดชนิดหนึ่ง โดยเทียบเคียงกับเกณฑ์มาตรฐาน
bond: a way that companies and the government borrow money from many people each of which owns one or more "bonds" which are usually traded on securities exchanges - พันธบัตร
boost: to increase - เพิ่ม
burden: a serious or difficult responsibility that you have to deal with - ภาระ
compile: to collect information from different places and arrange it in a book, report or list - รวบรวม
concern: a worry - ความกังวล
controversial: causing disagreement or disapproval - ความไม่ลงรอยกัน
credit negative: meaning: the credit rating would suffer and in the future loans would be more costly and difficult to get -
currency: the system of money that a country uses - เงินตรา
debt: an amount of money that you owe - หนี้, นี้สิน
deficit: the amount by which something is too small or smaller or less than something else - จำนวนที่น้อยกว่า, จำนวนที่ขาด
demand: the need and desire of people to buy goods - อุปสงค์
economist: a person who studies or writes about economics - นักเศรษฐศาสตร์
estimate: an amount that you guess or calculate using the information available - ประมาณการ
finance: to provide money for something - จัดหาเงินทุนให้
financial: involving money - เกี่ยวกับเงิน, ทางการเงิน
fiscal: connected with a budget; connected with the government budget, i.e., public money - เกี่ยวกับงบประมาณ
flagship: the most important product, service, building, etc. that an organisation owns or produces - ผลิตภัณฑ์หรือบริการหลัก
fund: money provided for something - เงินทุน กองทุน
global: throughout the world - ทั่วโลก
goal: aim; purpose - เป้าหมาย จุดมุ่งหมาย
grain: the small hard seeds of food plants such as wheat, rice, etc; a single seed of such a plant - เมล็ดข้าว, เมล็ดพืช
gross domestic product: the total value of all goods and services produced in a country in a year, except for income received from money invested in other countries. It is often simply called GDP - ผลิตภัณฑ์มวลรวมภายในประเทศ
guaranteed loan: guaranteed loan; when someone such as a the government agrees to pay back your loan if you cannot pay it back -
hamper: to stop someone or something from making progress or developing; to hinder - ขัดขวาง, เป็นอุปสรรค
impaired: not fully able to do something - ซึ่งไมสมบูรณ์
income: money that someone gets from working or from investing money - รายได้
instrument: a financial instrument; an investment such as stock shares, bonds, options, futures, etc. that is bought and sold in an organized market - เครื่องมือทางการเงิน
interview: to ask someone questions in a meeting - สัมภาษณ์
issue: a subject that people discuss or argue about - ประเด็น
issue: to officially give out - ออก
issuer: a person, company or organization that "issues" or gives out something -
jeopardise: to risk damaging or destroying something important - เป็นอันตรายต่อ,เป็นภัยต่อ,ทำร่าย,ทำอันตราย
lender: someone or something that lends (allows to be borrowed) money, especially a large financial organization such as a bank - ผู้ให้ยืม,ผู้ให้กู้
local: in this country (Thailand) -
mature: when a bond or other form of debt reaches the date on which it must be paid back -
maximum: the most possible - ที่สูงสุด ที่มากที่สุด
mill: to process something in a mill or factory -
miss target: to not achieve or reach the goal or target you wanted to achieve - พลาดเป้า
note: a bond of a particular kind - a 10-year note; a Treasury note
opt: to make a choice or a decision from a range of possibilities - เลือก
paper: financial assets; assets in the form of stock shares, bonds, bills of exchange rather than cash -
percentage: an amount divided by 100 - อัตราร้อยละ, จำนวนร้อยละ, อัตราต่อหนึ่งร้อย
policy: a set of plans or action agreed on by a government, political party, business, or other group - นโยบาย
potential: possible in the future - ที่อาจเป็นไปได้
progress: the process of developing or of getting nearer to achieving or completing something - ความคืบหน้า
protests: meetings, sometimes forceful or violent, or public statements by people who strongly disagree with something - ชุมนุมประท้วง
purchase: the process of buying something - การซื้อ
quasi-: partly; almost; that appears to be something but is not really so - ดูเหมือน, คล้ายคลึง
reduction: the process or result of making something smaller or less in amount, size, importance etc - การลดลง
rice pledging scheme: a government programme in which a fixed price, in this case well above the market price, is offered to rice farmers for their harvested rice - การจำนำข้าว
rice-pledging scheme: a government programme in which farmers sell rice to the government at a particular price, with the right to reclaim the rice if the market price goes higher - โครงการจำนำข้าว
rough: unfinished, unrefined - ไม่ได้ตกแต่ง, ยังไม่เสร็จเรียบร้อย
rural: connected with the countryside outside big towns and cities - ในชนบท, บ้านนอก
scheme: a plan that is developed by a government or large organisation in order to provide a particular service for people - แผนการ โครงการ
sentiment: a thought, opinion or idea based on a feeling about a situation, or a way of thinking about something - กระแส, แนวความคิด, ความคิดเห็น
sovereign: connected with the government of a country -
spread: in finance, the difference between the rates of return on two different financial assets such as bonds -
stockpile: a large collection of things that may be needed - สิ่งที่เก็บสะสมไว้ คลังสินค้า
swell: to become or cause to become larger than normal - บวม, ทำให้บวม, ทำให้พอง
target: a particular number or amount that you want to achieve - เป้าหมาย
trader: someone who buys and sells things - ผู้ค้า
translate: to change something, or to be changed, into a different form - เปลี่ยน, แปร
transparency: an honest way of doing things that allows other people to know exactly what you are doing - ความโปร่งใส
undermine: to make someone become gradually less effective, confident, or successful - บ่อนทำลาย
unprecedented: never having happened before - ที่ไม่เคยเกิดขึ้นมาก่อน
yield: the return or total amount of profits and income you get from an investment or a business - ผลตอบแทน, ผลตอบแทนจากการลงทุน
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