Thai government considers issuing US$1 billion foreign currency bonds

[webfact]

 

The Thai government has recently announced its consideration to issue foreign currency-denominated bonds valued at US$1 billion, approximately 36 billion baht, an announcement which has sparked debates over the worth and risks associated with such an undertaking. As part of this move, the Public Debt Management Office (PDMO) under the Finance Ministry is examining the feasibility of offering these bonds in several currencies, including US dollars, yuan, and yen.

 

Should the bonds be released in US dollars, it would be a landmark occasion as the first such issuance by the Thai government in 20 years. Interestingly, the last instance of foreign currency bond issuance took place in 2005, when the government released 48 billion yen (US$ 318,794,400) worth of three-year Samurai bonds to refinance a maturing loan from the Japan Bank for International Cooperation.

 

“The most likely choice is dollar-denominated bonds as it’s a widely used currency and a benchmark,” expressed PDMO director-general Patchara Anuntasilpa.

 

The PDMO has stated that the funds from any international bond sale would likely be used to finance sustainability-linked projects that add value to the economy. Despite the Thai authorities’ preference for raising the billions of dollars required annually to bridge a budget gap and fund local investments due to low interest rates, they have indicated that there is more than enough liquidity available in the Thai market for fund mobilisation.

Patchara noted that the Thai bond market has evolved considerably since the 1997 Asian financial crisis and has become a crucial funding source for governmental and corporate sectors, reported Bangkok Post.

 

Nevertheless, the authorities believe that issuing overseas bonds would allow the government to diversify its investor base and exploit fewer credit constraints in more liquid foreign bond markets. According to ministry officials, with significant development needs and reduced access to concessional financing as Thailand transitions from low to middle-income status, international bonds present an attractive financing alternative.

 

Overseas bond

 

However, issuing bonds overseas does not come without its drawbacks. For instance, it exposes Thailand to exchange rate risk, making the repayment of international debt more costly if the baht devalues. The cost of borrowing would also increase based on interest rates. As an example, 10-year US Treasury notes carry an interest rate of 4.6%, whereas domestic bonds of a similar maturity period only carry an interest rate of 2.5%.

 

The government’s foreign currency debt is only 1.4% of the total government debt portfolio, mostly consisting of loans from multilateral agencies. Thailand’s overall bond issuance cost in any currency will exceed local rates as it includes risk premiums, foreign exchange, and additional fees such as the conversion into domestic currency.

 

Meanwhile, the Thai government has been vocal about its plan to issue foreign currency bonds, but nothing has materialised so far. The PDMO had to postpone a planned dollar bond offering in 2022 due to market volatility. The newly appointed Prime Minister Srettha Thavisin has proposed overseas bond sales to fund sustainability projects.

 

Deputy Finance Minister Julapun Amornvivat has stated that the government aims to issue bonds within the next one to two years. Despite the higher borrowing cost of dollar-priced bonds compared to the local market, the cost would be cheaper or equivalent to local costs if the bonds were denominated in yen or yuan.

“If the issuance proceeds, the funds raised will be invested in environmental, social and corporate governance projects as they add value to the economy,” Patchara said.

 

However, some market observers have expressed doubts over the worthiness of issuing US$1 billion in foreign currency-denominated bonds. “If Thailand really is in need of foreign currency funds, why only US$1 billion? The authorities could easily mobilise that amount from the domestic market,” said a market observer who requested anonymity.

 

by Alex Morgan 

Picture courtesy of Bangkok Post

 

Source: The Thaiger 2024-02-29

 

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[tomazbodner]

That's on top of 20 billion $ for digital wallet?

 

Just how bankrupt is Thailand?

[HappyExpat57]

I am absolutely ignorant of money markets, stock market investing, etc. Simple man, simple real estate investments and a simple pension.

 

From my unknowing point of view, is this a case of Thailand becoming a middleman for selling US bonds? If so, wouldn't you want to bypass Thai banks altogether and just buy US bonds from US brokers? What value is Thailand adding in this equation?

[Mike Lister]

27 minutes ago, tomazbodner said:

That's on top of 20 billion $ for digital wallet?

 

Just how bankrupt is Thailand?

They are selling bonds, not buying them!

[Mike Lister]

14 minutes ago, HappyExpat57 said:

I am absolutely ignorant of money markets, stock market investing, etc. Simple man, simple real estate investments and a simple pension.

 

From my unknowing point of view, is this a case of Thailand becoming a middleman for selling US bonds? If so, wouldn't you want to bypass Thai banks altogether and just buy US bonds from US brokers? What value is Thailand adding in this equation?

This has nothing to do with the US or US bonds. Central Banks issue bonds as a means of financing, they are debt instruments that offer to pay a coupon rate of X for a period of Y years. BOT and government are active participants in the Thai bond market but only in Baht denominated bonds/debt. The decision to offer bonds in USD and other currencies means that the interest or coupon rate will be payable in that currency but also that the redemption value will be also. The risk with issuing foreign currency bonds is that nobody knows what the Baht /Dollar exchange rate might be in Y years, if things took a turn for the worse, that could prove extremely costly.

[hotchilli]

5 hours ago, tomazbodner said:

That's on top of 20 billion $ for digital wallet?

 

Just how bankrupt is Thailand?

After a decade of military intervention I'd say Very Broke.

[Mike Lister]

1 minute ago, hotchilli said:

After a decade of military intervention I'd say Very Broke.

Is that why the central bank holds over USD 212 billion in Foreign Currency Reserves and government debt is under 60% of GDP, the same level it was twenty years ago?

[hotchilli]

5 minutes ago, Mike Lister said:

Is that why the central bank holds over USD 212 billion in Foreign Currency Reserves and government debt is under 60% of GDP, the same level it was twenty years ago?

Hows the digital wallet scheme coming along?

[timendres]

4 hours ago, Mike Lister said:

The risk with issuing foreign currency bonds is that nobody knows what the Baht /Dollar exchange rate might be in Y years, if things took a turn for the worse, that could prove extremely costly.

 

This is precisely the risk.

In a world coming off the rails, USD will power higher, and the THB will fall, and all that debt will get a lot more expensive to repay.

That said, $1B USD is not earth shattering in that scenario.

[Srikcir]

5 hours ago, webfact said:

“The most likely choice is dollar-denominated bonds as it’s a widely used currency and a benchmark,”

A slam to BRIC. But reality.

[Mike Lister]

52 minutes ago, hotchilli said:

Hows the digital wallet scheme coming along?

Which one, do you mean the USD 15 bill wallet?

[john donson]

if you follow some users on youtube, something big is about to happen with all the trillions of dollars of worthless paper.... federal bank is making 186 billion dollars per year for the pleasure of printing paper

[hotchilli]

15 hours ago, Mike Lister said:

Which one, do you mean the USD 15 bill wallet?

The one Thais are waiting for almost a year after the election fiasco.

[Mike Lister]

5 minutes ago, hotchilli said:

The one Thais are waiting for almost a year after the election fiasco.

Do you mean the one that 70% of Thais want but 30% think is a bad idea?

 

https://www.nationthailand.com/thailand/general/40033612

[hotchilli]

1 minute ago, Mike Lister said:

Do you mean the one that 70% of Thais want but 30% think is a bad idea?

 

https://www.nationthailand.com/thailand/general/40033612

Maybe 30% are financially secure and say it's a bad idea,  70% are skint and could do with it.

[Mike Lister]

4 minutes ago, hotchilli said:

Maybe 30% are financially secure and say it's a bad idea,  70% are skint and could do with it.

Or maybe 30% understand what borrowing 560 bill will do to the economy and that it will increase prices.

 

BTW can I just say how much I look forward to sparring with you on these issues, first thing every morning. 🙂

[jacko45k]

21 hours ago, tomazbodner said:

That's on top of 20 billion $ for digital wallet?

 

Just how bankrupt is Thailand?

They are adopting the measures seen in the West, living off debt. We should all be grateful, it is driving the baht lower! That said, it isn't great for domestic inflation!

[Mike Lister]

3 minutes ago, jacko45k said:

They are adopting the measures seen in the West, living off debt. We should all be grateful, it is driving the baht lower! That said, it isn't great for domestic inflation!

The private sector might be but the government isn't, the public debt to GDP is almost the same today as it was after the 1997 crash.

 

https://tradingeconomics.com/thailand/government-debt-to-gdp

 

[hotchilli]

6 minutes ago, Mike Lister said:

Or maybe 30% understand what borrowing 560 bill will do to the economy and that it will increase prices.

 

BTW can I just say how much I look forward to sparring with you on these issues, first thing every morning. 🙂

30% may of understood the perils of having to borrow such a sum to buy votes to get a certain party into power.

Sad that the blinkered or un-caring politicians didn't consider it more carefully, but then why would they when they only consider themselves.

BTW, it's nice to have a civil debate with people who can share differing views without getting  personal.

Have a great day

[Shmo]

“ the funds raised will be invested in environmental, social and corporate governance projects as they add value to the economy,”

 

Please tell me how Blackrock’s global ESG program directives are actually adding value to the economy?
Most of the money spent there actually produces nothing tangible or physical, as it mostly pays for studies, papers and plans and programs and management salaries.
I don’t understand this to be “ value added”, since all that paper pushing consumes much and produces very little.