Foreign companies issue bonds in Thailand despite curbs

SINGAPORE — Foreign companies are still looking to sell bonds in Thailand’s local market despite tougher restrictions on the use of proceeds.

Chinese solar panel maker Trina Solar and Malaysia’s KNM Group last week won approval to sell baht-denominated bonds, becoming the latest foreign issuers to target Thai investors.

The two companies will have to sell the bonds within a nine-month period that will end on May 31 next year, according to the approval from Public Debt Management Office (PDMO).

Both companies will have to keep the proceeds in baht and use the funds in the country, a condition that Thailand’s Ministry of Finance imposed earlier this year.

That restriction had slowed foreign issuance in Thailand, but the latest approvals underline the appeal of the country’s vast local investor base.

Trina Solar Singapore Science & Technology will have no problems meeting the requirement as it is expected to use the proceeds for its production facility in Thailand as part of an expansion plans in the Southeast Asian markets.

Trina’s proposed bond will come with a guarantee from the Asian Development Bank’s Credit Guarantee and Investment Facility (CGIF).

This is Trina’s second attempt at a CGIF-wrapped baht bond issuance. The Chinese parent company had obtained approval in November last year for a similar guaranteed bond, but that fell through as investors were nervous about the impact of anti-dumping restrictions in the US and EU markets.

The latest bond will be issued through the Singapore subsidiary instead.

Meanwhile, KNM Group is likely to use the proceeds for a bioethanol project in Thailand, which is currently under construction. The plant is part of the move by the Malaysian company to diversify into renewable energy industries.

FUNDING HUB

Other foreign issuers, however, are more affected. Companies that had looked to remit proceeds overseas to complement their general funding sources have put their baht plans on hold.

Bankers and industry officials worry that the new rule is hobbling Thailand’s development as a regional funding hub.

“The Thai prime minister had made visits last year to the neighbouring countries in Indochina, offering the baht bond market as a regional funding centre for the region,” said an investment banker. “But this requirement goes against the grain of that policy.”

Market participants have appealed to the PDMO and the MoF, but the ministry has not budged from its position.

“All baht bond proceeds raised by foreign issuers must be mobilised for domestic markets to help boost Thailand’s economic growth,” said PDMO director-general Suwit Rojanavanich.

The MoF’s stance has disrupted issuance plans by the Lao People’s Democratic Republic. Laos received approval for its fifth baht bond in May but has yet to launch the transaction as it is working to accommodate the new requirement. The republic typically repatriates the funds to meet the government’s needs.

Mr Rojanavanich suggested that Laos could use the proceeds to pay off debt owed to Thai financial institutions.

Four financial institutions that won approval to sell baht-denominated bonds in January this year have yet to issue.

ANZ Banking Group, Central American Bank for Economic Integration, National Bank of Abu Dhabi and Malayan Banking have until the end of this month to sell the notes before their approvals expire.

The only foreign borrower to sell bonds in Thailand so far this year is Laotian utility EDL-Generation, which raised US$312 million (S$424 million) last month and brought the proceeds back home to finance power generation projects.

The bond was denominated in US dollars, approval for which comes from the Bank of Thailand and not the PDMO, a loophole that could give a way for foreign issuers to circumvent the requirement. The PDMO controls the approvals of baht bonds by foreign issuers. IFR MARKETS NEWS