Project Funding For Infrastructure Development in Bangkok
Positioning os o g Thailand’s a a d s Bond o d Market a e September 2010 Euromoney Conference London, UK
Signs of recovery (Monthly data : January 2008 – July 2010) INVT+CONS rebounded 190 180
186
Production resumed 80
Confidence regained 60
76
55.7
75
180 70
50
60
40
47.3
170 160 150 55
Business sentiment Index Jan‐2009
Jan‐2008
30 Jan‐2010
Jan‐2009
Jan‐2008
140
34.4
Capacity Utilization
50
Jan‐2010
Jan‐2008
140
Jan‐2009
Private Investment Index
Jan‐2010
150
19,000
80 7 80.7
18 037 18,037
137
17,370
79.3
80
17,000
135 133 15,000
130 75
13,000
125
11,000
Jan‐2010
70
Jan‐2009
Consumer Confidence Index Jan‐2008
Jan‐2010
9,000
Jan‐2009
Exports (BOP basis, Mil USD) Jan‐2008
Jan‐2010
Jan‐2009
Jan‐2008
120
71 5 71.5
10,425
121
Private Consumption Index
1
Source : Bank of Thailand, University of Thai Chamber of Commerce
Fiscal Stimulus averaged 5% of GDP
TKK 2012 : 1,296 Billion Baht
(FY2009 – FY2011)
(CY2008 – CY2012)
600
8%
Additional public borrowing (TKK 2012) Budget Deficit % to GDP (RHS)
Billion Billion Baht
80
baht
6%
60
5 8% 5.8%
400 4.9% 4.5% 3.6% 4% 260 200 1.7%
0
146
1.8%
165
2%
441
233
420
Others 150 12% Public Health 108 8%
Logistic 370 29%
Community C it Investment 141 11% Education 143 11%
Energy 157 12%
Agriculture 227 18%
420
0
0% 2006
2007
2008
2009
2010
2011
2012
2 Source : Public Debt Management Office, Ministry of Finance
Huge stimulus package resulted in 10‐year high GDP growth despite p political turbulence NESDB (23 Aug 2010) doubled its 2010 GDP growth forecast from 3.5% to 7.5% due to higher‐than‐expect export and investment. Real GDP % growth (Q‐on‐Q) and GDP current price (Billion Baht)
12% 10,000.9 BB
12%
9,080 BB
9,050 BB
9%
8 530 BB 8,530 8%
6%
7,850 BB
6%
6%
5% 4%
3%
US financial Crisis 0%
Stimulus package : Sti l k TKK 2555
‐3% ‐4% ‐5%
‐4%
GDP % Growth (Q‐on‐Q)
2007
2008
2009
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q1
Q2
2006
Q1
‐7%
‐8%
2010 3
IMF foresees that Thailand will enjoy strongest rebound among ASEAN–5
Huge stimulus pays off 15
(excl China & India)
% change (Y‐on‐Y)
Real GDP (year on year percentage change) 10
Chi China 7%
5
India
0
‐5 2008 China
India
2009 Hong kong Hong kong
Korea
‐2.3% Indonesia
2010F Malaysia
2011F Philippines
Vietnam
Thailand
4
Source : World Economic Outlook Database, IMF, 2010
Effective Management in Stimulus Package leads to LOWER Public Debt to GDP in Long run 48.7%
48.9%
48.7%
47 8% 47.8%
48.2%
18,738.15 BB 18,738,150 , , MB 47.0%
46.3%
45.4%
45.2% 43.3%
37.3%
43.8%
Billion Baht) GDP (Current price, MB)
2019 ƒ
2018 ƒ
2017 ƒ
2016 ƒ
2015 ƒ
2014 ƒ
2013 ƒ
2012 ƒ
2011 ƒ
2010 ƒ
2009
2008
10,000.90 BB
Public Debt to GDP Source: PDMO, as of SEP 10
5
External Balance Strong: ST Debt low and well covered by Reserves
M USD
%
L Long-term t
72%
120,000
80
Short-term External Debt/GDP
90,000
60
60,000
40
27% 30,000
20
0
0 Q1 2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
6
Consensus: Thailand’s fundamentals remains sound and improving in spite of widespread concerns with political situation in spite of widespread concerns with political situation Fitch’s Thailand Analysis* y Strength • External Financial position remains strong, stronger than most in BBB • Sound banking system, strongest in BBB group • Economy recovered (GDP revised up to 6.7%) despite global economic downturn AND political turmoil Weakness • Political uncertainty (although yet to affect credit) • Concerns with medium term fiscal position Remarks: * Fitch’s Thailand Report, April 2010 **MoF (Japan) Survey of factors affecting investors confidence, by order of priority ***Respondents asked to rank most problematic factors, Global Competitiveness Report 2009-2010
MoF (Japan)’s Investor Survey** ?• Political stability • Competence of the economic management team • Strong external accounts positions • Efficiency Effi i and d stability bili off the h fifinancial i l system • Foreign exchange reserves • Asset quality of financial institutions • Policy consistency or rigidity
Problematic factors of doing business*** Foreign currency regulations Inflation Inadequately educated workforce Poor work ethic in national labor force Poor public health Restrictive labor regulations Government instability/coups Tax rates Crime and theft Tax regulations Access to financing Policy instability Inadequate supply of infrastructure Inefficient government bureaucracy Corruption. Philipines
0 5 Indonesia
10 15 Thailand
20
25
30
7
Credit Rating is Yet to be “upgraded”
Economic growth rebounded Confidence regained Momentum restored Aaa AAA Aa1 AA+
• International Reserves/ ST External Debt Ratio < 1
• International Reserves/ ST External Debt ≈ 4.5 (as of June 2010)
• NPLs : Commercial Banks: 47%, Finance Companies: 67%
• NPLs: Commercial Banks: 5%, Finance Companies: 12%
• Financial Markets Imbalances: Bond 12%, Equities 24%, Bank Loans 128% ((as % of GDP))
•Balance of Financial Markets Achieved: Bond 65%, Equities 66%, Bank Loans 82% ((as % of GDP))
• Absence of Social Safety Net
• Universal Coverage for Health Care Increased to 97% of Total Population
• Absence of Bankruptcy laws and deposit guarantee
Aa2 AA
% GDP (growth) 15%
10%
• Bankruptcy law and The Deposit Protection Act were established
Aa3 AA‐ A1
A+
A2
A
A3
A‐
? pre‐crisis
5%
0%
Baa1 BBB+
Momentum restored
Baa2 BBB Baa3 BBB‐ Ba1 BB+
Investment Grade
recovery post‐crisis
‐5%
•IMF Loan paid
‐10%
Ba2 BB ‐15% Q Q 1 / 1995 Q 2 Q Q 3 Q Q 4 Q Q 1 / 1996 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 1997 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 1998 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 1999 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2000 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2001 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2002 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2003 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2004 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2005 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2006 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2007 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2008 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2009 Q Q 2 Q Q 3 Q Q 4 Q Q 1 / 2010 Q Q 2 Q Q 3 Q Q 4 / 2010 Q
Ba3 BB‐
Thailand’s GDP growth Y‐O‐Y Thailand’s credit rating by Moody’s
Thailand’s credit rating by S&P
8
1997 Asian Financial Crisis
The Rude Awakening
Imbalanced Capital Market Non‐existence of Bond Market
(10% of GDP in 1997)
% GDP (share) 140%
128% 120%
105% 100%
82% 66%
80%
60%
40%
72%
65%
52% 39%
20%
7%
Bond Market : GDP
2009 2
2008 2
2007 2
2006 2
2005 2
2004 2
2003 2
2002 2
2001 2
2000 2
Equity Market : GDP
2010 (Q2)
Bank Loan : GDP
1999
1998
1996
1995
1994
1993
1992
1997
10%
0%
9
From Forced Development to Bond Market Efficiency
Brutal Transition
Bond Market Development Bureau PDMO Bond Market Development Bureau, PDMO
2007 – 2010 :
V l Volume Oriented Oi t d
D l Development Oriented tO i t d
Bond Market Capitalization tripled Government Bond’s Outstanding grew by 50 times
Regular Benchmark Issuance New Product Development Pro‐active Bond Market Management (BoT and PDs)
80%
60%
52%
6,0006
4,0004
2,0002
‐ Illiquid Bond Market ‐ Absence of Benchmark Bond Ab fB h kB d ‐ Dominated by SoE’s Bond ‐ Retail Market
40%
10% %
Pre‐Crisis
20% 0%
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0% 1996
0
% to GDP (share)
Post Crisis – 2000:
Government Bond Market Shared jumped from 3% in 1997 to 44% in 2000
1995
Billion Baht Trillion Baht
8,0008
100%
65% %
10,000 10
10
2007 Bond Market at Crossroad
Towards Sustainable Domestic Bond Market Development
Pro‐‐active Manaagement
Amend Act to allow for government bond issuance for market development purpose To ensure continuity of Benchmark Bond amidst balance Budget To ensure continuity of Benchmark Bond amidst balance Budget
Amend Act to allow for Prefunding of large size Benchmark Bond To built up sizable Benchmark Bond in order to enhance liquidity To built up sizable Benchmark Bond in order to enhance liquidity Increase Benchmark Bond Outstanding Increase Benchmark Bond Tenors Increase Auction Size Reduce Auction Frequency
New w Produ ucts
F Feature s Ad djustme ent
A Amend ding PDMO Act
Bond Market Development Bureau, PDMO
30‐year Bond 30 year Bond (Insurance Company) (Insurance Company) Floating Rate Bond (Bank) Step Step‐up up Saving Bond Saving Bond (Retail Investor) (Retail Investor)
One‐on‐one (with PDs)+ Annual Market Dialogue (With PDs and Market Participants) Quarterly Schedule Announcement and Press Release MoF Award –
1. Best Primary Market Contributor for Bond 2. Best Primary Market Contributor for T‐Bill
11
Deep and liquid bond market allows government to meet funding Requirements (tripled as a result of stimulus measures) 1,400,000
Million Baht 1,200,000
Consistent Benchmark issuance Benchmark Yield curve Saving Bonds Expand investor base (Retail) Low Cost Bank Loan TKK Investment
1,000,000
800,000
Bank Loan 30 000 30,000
600,000
Tripled
ILB Rising inflation rate trend Long Term P/N Demand from Insurance LB 50 yrs bond Lengthen Portfolio
New Instrument, 58,500
Bank Loan Bank Loan 237,700
Bank Loan 60 000 Bank Loan 60,000
Other 120,000
T‐Bill 134,000
P/N 106,171
T‐Bill 50,000
P/N 49,989
SB 82,230 ,
P/N 70,514 P/N 70,514
LB 443,572
LB 440,000
T Bill T‐Bill ‐127,000
Refinance Bank Loan
SB 80,000
400,000
Strategy FY2011
P/N 30,950 200 000 200,000
‐
‐200,000
SB 6 000 SB 6,000
LB 193,250
2007 2550
SB 18,000
LB 223,363
2008 2551
LB 383,269
2009 2552
2010
2553
‐90,000
2011
2554
12
Market Liquidity Sustainable domestic funding source Lower cost of Funding Lower cost of Funding
Key Success indicators Sizeable Benchmark Bonds to enhance liquidity Billion Baht
120
Popular Benchmark Bonds 5yr & 10yr actively traded
130
1
5 yr
99
#
# 27%
28%
1
7 yr 10 yr
#36% 21% #
46
5 #7 7 #
%
2007
2008
2009
2010
Market Concentration of Top 10 most actively traded in secondary y market
6%
76%
+
2007
2008
2009
13%
#
5
8%
13%
12%
8% 2009 2552
2010 2553
+
383.27 BB
223.36 BB
7070% %
2
1.4 bps
1.2 bps
76%
12%
#
Well developed Benchmark Bond pays off: Low Cost despite higher amount
80% 80% 78% 78%
2
2008 2551
2007 2550
1
443.57 BB
-
- 0.6 bps
2010 2008
2009
2010
13
Non Junk Bond Market
Positioning Thai Bond Market
AA 4%
Bond B d Outstanding = 5,026 Billion Baht Billion Baht
A 9%
97% of Bond Market is “A” rated As of Aug 2010
BBB 3%
%
2,403
48%
Bank of Thailand
957
19%
State Owned Enterprise (AAA rated)
508
10%
C Corporate (AAA t (AAA rated t d)
271
5%
Foreign (AAA rated)
53
1%
4,192
84%
Government
AAA (Corp+Foreign)
6% AAA (SoE) 10%
(exclude <1 yr tenor)
Outstanding (Billion Baht)
Issuer
Gov't + BoT 67%
Total
67%
6%
*<1 year tenor = 1,439 Billion Baht (84% of which is BoT’s Bill)
400
SOEs and Corporate spread above Government Bond p p bps above sovereign SOE (3 year)
Corp AAA (1 year)
Corp AAA (3 year)
300
200
100
0 2006‐Q4 2007‐Q1
Q2
Q3
Q4
2008‐Q1
Q2
Q3
Q4
2009‐Q1
Q2
Q3
Q4
2010‐Q1
Q2
14
Corporate Bond shared 21% of Thai Bond Market* (90% of which are “A” Rated or Higher)
Others Oth 12% Energy 27%
ICT 5% Transportation 6% Property 7% Financial Institution 10% Construction Material 11%
*1,105 Billion Baht
Bank 22%
Source: ThaiBMA, as of Dec 09
15
Thai Bond Market in International Perspective
Clear Presence in Government Bond Emerging Market Indices
HSBC Asian Local Bond Index Weighting July 2010
Sep 2008: Lehman’s Crisis
Taiwan 10%
China 11%
Thailand
6%
Singapore 15%
Taiwan 8%
Hong Kong 15%
Philippines Phili i 4%
China 10%
Thailand 8%
Singapore Si 14 %
Philippines 4%
Hong Kong 14 %
Malaysia 9%
Malaysia 8%
India 7% Korea 16%
Indonesia 8%
India 7% Korea 16%
Indonesia 10%
16
Non Resident Holding in government bond has been doubled in last 3 months
Non Resident Holding in government bond Non Resident Holding in government bond 200 200,000 MB Billion Baht
Non Resident Holding (Government Bond) % h % share of government bond outstanding f t b d t t di
MPC rate hike:
9.9%
Jul 14, + 25 bps Aug 25, +25 bps
Current level = 1.75%
150,000 150
8.2%
12%
9%
6.6%
100,000 100
5.6%
6%
4.5% 3.8%
3.7%
50,000 50
3% 1.2%
0
0% 2006 2007
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
Q2
July
Aug
Sep
2010
17
Peers Comparison: Relatively high Liquidity in Secondary Market
32.16
Hong Kong
Japan
1.03
Korea
1.02
Thailand
0.78
Malaysia
0 61 0.61
Singapore
0.52
China
0.51
Philippines
0.5
Vietnam
0.4 0.28
Indonesia
0
As of March 2010 As of March 2010
0.5
1
1.5
2
18
Initiatives introduced to encourage foreign investment and promote ease of access for foreign investors in Thai government bond market
Si Singapore
M l i Malaysia
Th il d Thailand
Phili i Philippines I d Indonesia i
Restrictions
None
None
None
None
None
Tax on Interest
None
None
Exempt
20% final tax, with held at source
20%, or tax treaty rate
Capital Gains Tax None
None
Exempt
None
20%, or tax treaty rate treaty rate
Custodian
ADI
Require Local
RoSS
Require Local
MAS, Banks
Source: Standard Chartered bank, ThaiBMA
19
Contact PDMO: www.pdmo.mof.go.th p g Project Tel: Funding For Infrastructure (662) 265 8050
in Bangkok
Development
Chakkrit Parapuntakul
Director-General
juk@mof.go.th
Pimpen Ladpli
Director of Government pimpen@pdmo.go.th Bond Market Development Division
Nattakarn Boonsri
Director of Fund Management nattakarn@pdmo.go.th and Debt Securities Market I f t t Infrastructure Development D l t Division Di i i
Paroche Hutachareon
Analyst
paroche@pdmo.go.th
Nakarin Prompat
Economist
nakarin@pdmo.go.th