Resilient Thai bond market edges up
Thailand’s primary bond market has seen strong growth so far this year. Specifically, in the first half of the year, baht-denominated bonds recorded Bt5.07 trillion in issuance volumes, a robust growth of 24 per cent versus the same period in 2015.
This stands out against the broader Southeast Asia region, which in contrast saw an average 1-per-cent increase in volumes. Thailand’s market has been resilient amid the emerging market volatility since the start of 2016.
Declining interest rates have supported bond issuance volumes by reducing funding costs for borrowers. The five-year Thai government benchmark yield, for example, stood at 1.80 per cent on September 8, having fallen some 15 basis points from January.
Given this favourable condition, banks have encouraged bond issuance as an alternative source of funding for Thai issuers. According to the Bank of Thailand, commercial bank lending through loans in Thailand expanded just 3.3 per cent in the first half of 2016 – the slowest pace in several years. This is a strong contrast to the expanding Thai capital markets.
Thai bonds have also seen strong demand from both local and international investors who have been looking for yield. High investor cash positions and the expanding universe of negative yielding bonds give Thai bonds an edge. The proportion of foreign holdings in baht government bonds has steadily increased over time, standing at 14 per cent at the end of March, nearly doubling from 2011 when the same figure stood at 8 per cent.
Spotlight on corporate bonds
While the Thai bond market has historically been dominated by government bonds, there has been significant progress in the corporate bond market in recent years. Banks and the government have actively promoted bonds as a stable source of finance for companies.
Corporate bond issuances have grown steadily at 8 per cent compounded annual growth rate since 2010, with year-to-date volumes standing at Bt502 billion. This is 45 per cent higher versus the same period last year (Bt345 billion). For the country, a deeper capital market also creates broader economic growth.
As the corporate bond market grew in size, so has its depth and diversity. The market has seen bond issuances from companies across a broad range of industries, including banks, securities, property, energy and agribusiness, with no single sector accounting for more than 20 per cent of total issuances.
Corporate bonds issued also have longer maturities, with the proportion of bonds with maturities longer than three years increasing to 57 per cent of the total issued this year, compared with 49 per cent for the whole of 2015.
The corporate issuer base also continues to grow, with the number of new issuers in the Thai bond market standing at 104 at the end of 2015, up 27 per cent from the year before and the highest since 2006.
Notably, the Thai market has also attracted a number of prominent international names, such as Toyota and Mercedes Benz, both of which have issued baht-denominated bonds in 2016.
Standard Chartered played a key role on both issuances, acting as joint bookrunner on the Toyota transaction and sole lead on the Mercedes Benz transaction.
Still room to grow
Despite the good growth momentum, the ratio of Thailand’s bond market to gross domestic product currently stands at 75 per cent, which is lower than that of other Asian economies such as Singapore (78 per cent) and Malaysia (98 per cent). The gap is even bigger if only corporate bonds are included in the mix, with Thailand at 19 per cent, and Singapore and Malaysia at 33 per cent and 44 per cent, respectively. Clearly, there is a lot of room for further financial deepening in the Thai bond market, and it is certainly a market for issuers and investors to watch out for.
Henrik Raber is Global Head, Capital Markets, Standard Chartered Bank
