TBMA eyes B1tn in corporate bond issuance for this year

TBMA eyes B1tn in corporate bond issuance for this year

The issuance of corporate bonds is expected to reach 1 trillion baht this year if the same growth rate continues in the second half, as businesses seek capital to weather a prospective global interest rate hike next year, says Thai Bond Market Association (TBMA) president Tada Phutthitada.

According to the TBMA, the tally of corporate bond issuance was 504 billion baht as of June 19, an impressive total for the first half of the year.

Mr Tada said the full-year total might break the record set in 2019 at 1.05 trillion baht.

After the pandemic slowed issuance, the figure dipped to 677 billion baht in 2020.

He said 387 billion baht worth of corporate bonds are scheduled to mature in the second half this year, of which 345 billion are investment-grade bonds that normally roll over, according to TBMA's internal survey.

Ariya Tiranaprakit, TBMA's deputy managing director, said the total amount of bonds issued for rollover is typically larger than those that will mature.

Many large Thai conglomerates such as Minor Corporation Plc (MINT), Banpu Plc, BTS Group Holdings, and Thai Beverage Plc are reportedly planning to issue more bonds this year.

In addition, Carabao Group Plc is planning to issue bonds worth 1.5 billion baht for institutional investors.

Some new small issuers are also expected to offer bonds, said TBMA.

Mr Tada said the local interest rate is expected to increase in line with the global interest rate. Private companies have started preparing their fundraising plans to deal with the prospect of higher interest costs, he said.

Last Thursday, the US Treasury bond yield curve picked up to 2% after the Federal Reserve sent a signal that the interest rate will likely rise in 2022, one year faster than previously expected.

At present, the absolute yield or government bond yields combined with credit spreads for a three-year corporate bond with an A rating stands at 2.05%, down slightly from 2.1% in December 2019, even though the policy interest rate was cut by three times in 2020, because credit spreads have widened.

The absolute cost for BBB+ bonds also rose to 6% from 5.28% in December 2019 for the same reason.

In general, when the market interest rate picks up, the price of corporate bonds will fall and affect institutional bond investors because they need to record the losses in their accounts according to international financial reporting standards.

This usually causes institutional investors to sell their bonds before the maturity date and turn to bonds with a shorter term.

This is one reason why bond issuers need to prepare their fundraising in advance, especially issuers of investment-grade bonds with ratings above BBB+, which are mostly held by institutional investors.

The impact from a higher coupon rate caused by an interest rate hike will likely be lower for non-investment-grade and non-rated bonds.

Yodrudee Santatikul, senior executive vice-president at Asia Plus Securities (ASPS), said the issuing costs for bonds rated below BBB+ have already risen from 4.5% to nearly 7% for non-rated bonds.

"The interest cost on these debenture issuers is already high. It is unlikely to rise higher than this," she said.

Ms Yodrudee said balancing the sources of funding -- both bank loans and bond financing -- is necessary.

ASPS recommends to its customers who issue bonds below a BBB+ rating to do so only when they have a project that needs investment, rather than blindly following larger companies because their investor bases are not the same.

People who invest in bonds with lower ratings are mostly individuals with a high net worth or who are accredited, and these investors are attracted to corporate bonds by the absolute return, which is normally higher than bank deposits, said ASPS.

These investors often hold that bond until the maturity date, unlike institutional investors who hold bonds for both investment and trading purposes, said the brokerage.

According to the Securities and Exchange Commission, individual investors hold 31% of the total outstanding value of corporate bonds as of April 2021.

Mr Tada said the secondary bond market is currently illiquid. If the interest rate picks up, individual investors who want to sell their debentures for the higher coupon rate before the maturity date may need to sell them at a discount price and face a loss.

"The only thing they can do is wait for the maturity date and renew the principal into a shorter bond term," said Mr Tada.

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