KBank more cautious on non-rated debt instruments

 In 2016, KBank underwrote non-rated BE issuances worth Bt3 billion combined, but those issuers were the bank’s lending clients, that is, customers whose objectives behind such fund-raising were clear, while those investing in the BEs were private banking customers, Thiti Tantikulanan, head of the capital markets business division, said yesterday.
 However, the overall level of BE defaults in the banking system last year has caused KBank to heighten its caution about the possibility of more defaults, and it has informed customers that now might not be the right time to issue non-rated BEs, he explained.
 With the bank’s maturing non-rated BEs in the current quarter accounting for 50 per cent of its outstanding debt instruments, the bank will reconsider its position provided those instruments do not present any significant problems, he added. 
 In any case, new non-rated BE issues will be less attractive to investors until the BE default situation has been resolved, Thiti stressed.
 Last year, non-rated bonds accounted for 8.3 per cent of all corporate bonds in the Thai system, up from 4.8 per cent in 2015.
 The default issue is partly the reason for an expected reduction in overall debenture issuance this year, with KBank forecasting that new private-sector debentures will total some Bt600 billion, down 20-25 per cent from last year’s level.
 With high liquidity in Thailand and investors such as funds, insurance firms and cooperatives still wanting to put money into corporate bonds, debt instruments will still be in demand, but the amount is likely to return to the more normal level seen in 2014 and 2015, KBank’s capital markets chief said.
 Market volume last year increased 36 per cent from the 2015 level due to a number of huge deals, such as Berli Jucker’s Bt82-billion debenture, Siam Cement Group’s Bt50-billion issuance and a Bt29-billion debenture issued by Charoen Pokphand Foods.
 This year, KBank expects many companies in the utility, power and property sectors will continue to raise funds from the debt market, while the market will see new players – property firms, in particular – issuing rated debentures.
 The bank aims to maintain its position as the second-biggest underwriter of debentures, with a projected market share of 18-19 per cent, Thiti said. 
 Last year, KBank underwrote Bt126.29 billion, representing 18.41 per cent of the overall market value.
 He also said that over the past year, exporters had increasingly agreed to use forward foreign-exchange contracts due to high market fluctuations and the baht having strengthened against the US dollar since mid-2016. 
 The proportion of forex hedging by KBank’s export clients grew to 43.2 per cent from 39.4 per cent in 2015, while import clients used hedging for 45.5 per cent of their business, against 43 per cent the previous year.
 However, the trend could slow this year, because the US dollar will be trending up while US interest rates are also expected to rise, he added.
 KBank projects that the baht’s rate against the greenback will be 36.50 at the end of the year.