Corporates put off fund-raising
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Uncertainty over QE in US, liquidity risk in China behind delay, says Kbank
A number of corporate customers are postponing fund-raising and overseas activities due to the unclear picture about the future of quantitative easing (QE) in the US, coupled with the liquidity risk in China’s financial market, Kasikornbank said yesterday.
The ongoing capital outflow resulting from QE uncertainty has driven up the yields of government bonds, pressuring the financial costs of companies by at least 50 basis points, said executive vice president Vasin Vanichvoranun.
He expects uncertainty to remain for the next two to three months, with the likelihood being that QE in the US will end during the final quarter of the year. While Thailand’s gross domestic product this year could still expand by 4.8 per cent, private consumption might be affected instead, he warned.
Although some of KBank’s corporate clients have postponed fund-raising via initial public offerings as well as bond issuance, due to the hike in financial costs, delayed investment has not yet affected any of the bank’s deals in the pipeline this year, said Vasin.
“We believe we can hit the lending target for first-half growth of 4.4 per cent to Bt413 billion,” he added.
KBank suggests that corporates needing funds through the debt market should look at short-term rather than long-term borrowing. The cost of the former is currently markedly lower, at 2.5 per cent against 3.5 per cent for the latter.
In the financial market, customers should take out short-term loans as the floating rates are unchanged, said the executive.
The cost of long-term borrowing is expected to increase if the US economy shows signs of clear recovery, in particular in the unemployment rate, he said.
Uncertainty over the future of the QE programme in the US has contributed to the recent rapid swing in the baht’s value against the US dollar, and with the foreign-exchange market currently unpredictable, forward forex might not be the right way for corporates seeking to cope with the volatile situation, he said.
KBank is, therefore, urging importers and exporters to take forex options instead of engaging in forward contracts, as the latter are currently unattractive for mid-sized companies.
Vasin said liquidity risk in China presented another pressure for Thai corporates doing business in that country.
At least 5 per cent of the bank’s corporate customers, accounting for Bt45 billion of the loan portfolio, have trading activities in China.
He said the liquidity risk in China had not, however, yet reflected on foreign direct investment in Thailand.
Most FDI business is from Japanese investors, from which there have been some 530 projects worth Bt256 billion combined so far this year, he said.
“We have talked with the bank’s partners in Japan about the economy. Japanese corporates have not suspended their investment in Thailand despite QE uncertainty, because Japanese investors regard it as long-term investment,” he added.
