Time right for debenture issues to keep financing costs low, TMB Analytics advises Thai corporates

It said in a research note that the government’s demand for funds to support its infrastructure mega-projects will significantly increase its bond issues, which could affect the financing costs of private companies, causing the yield of “BBB”-rated companies to increase by 0.5 percentage point. These costs might suffer an additional increase if the US Federation Reserve ends its quantitative-easing programme.

The current low financing costs are an opportunity for the private sector to mobilise funds, including those companies without the good credit ratings of large firms. Corporates should speed up bond issuance before interest rates increase again next year, according to the research.

Corporates with credit ratings of “BBB” and higher can expect to reduce their financing costs by 2-3 per cent from the minimum loan rates of banks. 

To individual savers, TMB Analytics suggests shifting their investments to bonds or fixed-income funds from time deposits. The return of bonds is 2.2 per cent per annum on average against 1.8 per cent from time deposits.

Analysis of the past three years indicates that investors in 12-month fixed deposits saw a return before tax of 1.8 per cent per annum. Investors in fixed-income funds enjoyed an annual return of 2.2 per cent, and they were not required to pay tax on this investment.

Fixed-income funds had an annual growth rate of 15 per cent four to five years ago, 8 percentage points higher than deposit growth. The ratio of investments in deposits to fixed-income fund dropped to 14.7:1 in 2012 from 15.9:1 in 2008. 

Even though investment in bonds or fixed-income funds has higher risk than bank deposits, they are less risky than the stock market.

The policy-rate cut will also help the baht to depreciate and thereby benefit listed export companies, especially those dealing in foods and electronic parts, according to Asia Plus Securities.

The second and third quarters are the season of exports, and the trend towards a weaker baht will be positive for Thai exporters. Asia Plus picked listed companies in the electronics and agricultural/food sectors as those that will benefit most.

It said SVI, Delta Electronics (Thailand) and Hana Microelectronics were three listed companies in the electronics sector that would show impressive performances from a weaker baht.

SVI has received additional orders from five new customers, which could offset orders from existing customers that have not improved since the flood in 2011. Delta is expected to report a rise in profit in the second and third quarters because it supplies electronic parts for cloud computing, which is growing in line with the use of smart phones and tablets.

Hana will show outstanding profit as well, as it will book revenue from flood-compensation claims while also exporting electronics to the computer, mobile-phone and auto industries.

For the agricultural and food sector, the securities firm noted that it saw a sign of a rebound in shrimp export in the remaining months of the year, while the outlook for farm businesses such as poultry showed good momentum, and domestic prices were also increasing.