News Column

Corporate bonds 'a major force'

August 28, 2014

By Darana Chudasri, Bangkok Post, Thailand

Aug. 28--Companies have been advised to diversify their funding sources into bonds, which carry a substantially lower cost than borrowing from financial institutions.

The cost of bonds assigned an A rating such as those offered by PTT Plc and Siam Cement Plc is a mere 3-4%, while even those with a BBB rating are 4-5%, lower than banks' minimum lending rates.

"The private sector's financial position is solid and among the country's major economic drivers, so corporate bonds are very important. The lower the funding cost, the higher the efficiency they will have in driving the economy," said Tada Phutthitada, president of the Thai Bond Market Association (TBMA).

Fund mobilisation through bond issues is less popular among privately owned companies than borrowing from banks or equity offerings.

Outstanding bonds as of June 30 amounted to 9.2 trillion baht, far below the local bourse's market capitalisation at 13.6 trillion and bank lending at 12.1 trillion.

Bonds account for 76% of GDP. The government including the Bank of Thailand is the largest issuer in the debt market, with government bonds representing 59% of GDP, while corporate bonds remain small at 22-23%.

Corporate bond issuers are concentrated in five major sectors ? banking, energy, financial institutions, construction and property.

"Corporate bonds have plenty of room to grow. Only 20% of SET-listed companies have issued bonds. A number of large non-listed companies also have potential to issue bonds," Mr Tada said.

New bond issues are expected to hit a fresh high this year as the private sector locks in low interest rates to prepare for expansion ahead of a rate hike seen as likely next year.

The TBMA recently estimated companies would raise more than 500 billion baht this year.

To encourage more bond issues, it will join with the Securities and Exchange Commission and the Thai Chamber of Commerce to raise awareness of using the bond market as a funding source.

The TBMA also plans to facilitate Thai companies issuing bonds abroad and promote foreign companies launching baht-denominated bonds.

It also plans to set up a bond academy in each of the country's four regions.

Related search: market, corporate, bond


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Source: Bangkok Post (Thailand)

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