Thai Government Completes Maiden Securitization

[Jai Dee]

Monday November 28, 5:49 PM

ASIA DEBT: Thai Govt Wraps Up Maiden ABS; More To Come

A Dow Jones Newswires Column

SINGAPORE (Dow Jones)--The Thai government will Tuesday complete its maiden securitization and will likely sell more such deals as it seeks cash to upgrade the country's beleaguered infrastructure.

The government raised THB10.3 billion (US$250 million) in the country's largest-ever securitization through the sale of four tranches of bonds backed by 30-year leases on new government offices that are currently under construction on the outskirts of Bangkok, the Thai capital.

"They would like to use this one as a pioneer for future transactions that they may do for infrastructure projects," including toll roads and subways, said Pimolpa Simaroj, director of structured finance at Fitch Ratings in Bangkok.

Prime Minister Thaksin Shinawatra's government has committed to spending THB1.8 trillion (US$43.6 billion) between 2005 and 2009 to bolster infrastructure, including the country's bulging transport systems and battered water systems.

The asset-backed bonds, sold via a special purpose vehicle set up by Dhanarak Asset Company Ltd., a development company owned by the Ministry of Finance, attracted solid interest from both retail and institutional investors.

Marketing of the bonds was due to run from last Thursday until Monday, but demand was so strong that subscription for the THB1.5 billion seven- and THB2.0 billion 10-year bonds closed mid afternoon Thursday.

Lead managers Bangkok Bank PCL, Government Housing Bank, the local unit of HSBC Holdings PLC and TMB Bank PCL sold the seven-year paper at a yield of 6.7%, down from an originally targeted 6.8%, while the 10-year paper pays a yield of 7.35%. Both were priced at par.

Meanwhile, an order book of THB4.5 billion prompted the government earlier this month to increase the size of the 15- and 20-year tranches to THB1.8 billion and THB5.0 billion respectively from THB1.5 billion and THB4.5 billion.

The 15- and 20-year asset-backed securities were priced at par to yield 7.75% and 7.99%. All the bonds will be issued Tuesday.

"The market is structurally short of duration," said Danny Suwanapruti, fixed-income analyst with Standard Chartered Bank in Singapore to explain the strong demand.

"Insurers have long 20-, 30-, 40-year liabilities. The problem is that there aren't enough long-dated bonds out there."

Need For Cash Outweighs Cost

At the same time, analysts said high liquidity in the banking sector plus a desire among individual investors for higher returns than those offered by bank accounts helped boost demand for the deal.

Individual investors - who usually shy away from complex instruments like securitizations - were soothed by a clear legal structure that showed the rental streams to be securitized as well as the bullet or one-time repayment structure of the bond, said Kyson Ho, director of structured capital markets at HSBC in Hong Kong.

The government gave added assurance via a commitment to ensure lease payments would be made even if the buildings weren't completed by the scheduled July 2008. That helped the deal gain local ratings of AAA by both Fitch Ratings and Thai rating firm Tris Rating Co. Ltd., the first time a Thai securitization has been rated by two firms.

"We want to distribute our bonds to a wide range of investors," said Wisudhi Srisuphan, director-general of the ministry's Treasury Department and Chairman of Dhanarak Asset Development at a signing ceremony Monday.

Also helping the sale was the turnaround in the bond market in the last couple of weeks.

Long-dated bond yields are about 200 basis points higher than they were at the start of July, but aren't as high as they were.

"They (the government) has scheduled construction that they want to meet and they have a need for funds. They could have waited to sell the bonds but then the construction would have to wait so rates are not the only consideration in mind," said HSBC's Ho.

This week's sale of asset-backed bonds is the first of a three-part securitization of the office leases planned by the end of 2007 to raise a total THB24 billion.

"They want to talk to us again early next year about the next one," said the banker working on the deal.

And more could be on the way.

Thailand's infrastructure suffered years of underinvestment after the 1997 Asian financial crisis as the government prioritized getting the country's fiscal house in order. But now the country has funds in hand and urgently needs to think ahead.

"Thailand needs to invest in infrastructure for the economy otherwise bottlenecks will appear in the next five to 10 years," said Nicholas Bibby, regional economist with UBS AG.

The government has said the so-called "mega projects" will boost annual growth to 5.65% and remain at 4.76% per year without them.

The projects are also a cornerstone policy of the ruling Thai Rak Thai party, which has said it will fund them largely through borrowing in the domestic and overseas markets and through the government budget.