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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


Positioning Thailand's Bond Market