Corporate bond issuance to surpass B750bn target

Corporate bond issuance to surpass B750bn target

Remote work, excess liquidity key factors

Corporate bond issuance is expected to exceed the market's target of 750 billion baht this year because of excess liquidity in global money markets and readiness of financial intermediaries to comply with social distancing measures and remote work, says Ariya Tiranaprakit, deputy managing director of the Thai Bond Market Association (TBMA).

In 2020, the value of total corporate bonds issued was 677 billion baht, down 35.6% from a record high of 1.05 trillion in 2019, the first dip in six years.

According to TBMA statistics, the growth of corporate bond issuance during the past six years occurred when there was excess liquidity in the global money markets caused by money injections from central banks.

After the pandemic emerged in early 2020, US bond yields rose significantly after mass sellouts, rendering bond instruments highly unattractive in the first quarter of last year.

"The situation is getting better, but we may not see much bond fundraising from mergers and acquisitions like the last few years before the pandemic," said Ms Ariya.

She said most corporate bonds this year will be issued to refinance debt and increase working capital for business operations.

As of last Friday, this year's total corporate issuance stood at 312 billion baht, nearly half of last year's 677 billion.

In addition to excess global liquidity, financial intermediaries are better prepared to work remotely this year after social distancing measures last year forced many bond issuers to postpone deals because their systems and equipment could not accommodate work from home.

"Even though the number of cases is rising, the outbreak will not be an obstacle," said Ms Ariya.

"The industry has prepared online distributions, tape recording systems, and motorbike messengers to operate the back end."

She said high net worth investors in Thailand are still responsive and overbooking corporate bonds with a high rating and familiar names.

The value of long-term corporate bond offerings for the first quarter reported by the Securities and Exchange Commission (SEC) increased by 47 billion baht or 27.9% to 215 billion, up from 168 billion in the first quarter of last year.

Ms Ariya said the SEC's figures include primary market placement, private placement investors, and high net worth investors, for which some issuances were not listed on secondary markets such as the TBMA.

She said the increased credit spread for government bonds make the coupon rate of corporate bonds and the interest rate paid by issuers attractive.

As of last Wednesday, the corporate yield spread for corporate bonds with AAA rating for the past five years was 1.03% over the government bond, while A rating bonds were 2.225%.

These figures are much higher than pre-Covid levels of 0.86% for bonds with AAA rating and 1.3758% for bonds with an A rating.

For bond issuers, the local interest rate has become much more stable since the end of April.

The current interest rate is quite attractive for bond issuers who want to fix their interest rate costs, which could increase if the inflation rate rises higher than market expectations.

The government's 10-year bond yield yesterday was 1.772%, down from the year's high of 2.053% in March.

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