1
Project Funding For Infrastructure Developmentin Bangkok
Launching ofThailand’s First Inflation Linked Bond
20th – 25th June 2011
Thailand first’s ILB
London – UK, SG, HK
2
The information contained in this presentation is for informational purposes only and does not constitute an offer or invitation to sell or the solicitation of an offer or invitation to purchase or subscribe for THB inflation linked bonds (the “ Bonds”) issued by the Ministry of Finance of the Kingdom of Thailand in the United States, Thailand or any other jurisdiction nor should it or any part of it form the basis of, or be relied upon in any connection with, any contract or commitment whatsoever.
This presentation is confidential and is intended only for the exclusive use of the recipients thereof and may not be reproduced (in whole or in part), retransmitted, summarized or distributed by them to any other persons.
None of The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch Krung Thai Bank Public Company Limited, The Siam Commercial Bank Public Company Limited and Kasikornbank Public Company Limited (together, the “the Joint Lead Managers”) or the Issuer nor any of their holding companies, subsidiaries, affiliates, associated undertakings or controlling persons, nor any of their respective directors, officers, partners, employees, agents, representatives, advisers or legal advisers makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document or otherwise madeavailable nor as to the reasonableness of any assumption contained herein or therein, and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. Nothing contained herein or therein is, or shall be relied upon as, a promise or representation, whether as to the past or the future and no reliance, in whole or in part, should be placed on, the fairness, accuracy, completeness or correctness of the information contained herein. None of the Joint Lead Managers, the Issuer or their subsidiaries or affiliates has independently verified, approved or endorsed the material herein, or undertakes to update or revise any information subsequent to the date hereof, whether as a result of new information, future events or otherwise.
This presentation may contain forward-looking statements that may be identified by their use of words like “plans”, “expects”, “will”, “anticipates”, “believes”, “intends”, “depends”, “projects”, “estimates” or other words of similar meaning and that involve risks and uncertainties. Forward-looking statements are based on certain assumptions and expectations of future events. None of the Joint Lead Managers or the Issuer can guarantee that these assumptions and expectations are accurate or will be realized. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements as a result of a number of risks, uncertainties and assumptions. You are cautioned not to place undue reliance on these forward looking statements. None of the Joint Lead Managers or the Issuer assumes any responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events, or otherwise.
These materials may not be taken or transmitted or distributed, directly or indirectly, to a U.S. person (as defined in Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”)) or to any officer, employee or affiliate of a U.S. person located in the United States or any of its territories. It may be unlawful to distribute these materials in certain jurisdictions.
DisclaimerPublic Debt Management Office, Ministry of Finance - Thailand
3
-2.3%
7.8%
4.0%
-5%
0%
5%
10%
15%
2008 2009 2010 2011F
China Hong Kong SAR India Indonesia Korea Malaysia Philippines Vietnam Thailand
Thailand’s stimulus package in 2009 led to
a strong rebound in economic growth
ChinaIndia
Real GDP (year on year percentage change)
Source : IMF, World Economic Outlook Database, April 2011
% change (Y-O-Y)Public Debt Management Office, Ministry of Finance - Thailand
Thailand
4
Biggest Stimulus Package in the Region
(TKK* 2012 plan)
TKK* 2012 : US Dollar 43 Billion
(By Sector)
Logistic12.328%
Agriculture7.518%Energy
5.212%
Education4.711%
CommunityInvestment
4.711%
Others5.012%
Public Health3.68%
Source : Public Debt Management Office, Ministry of Finance
EconomyStimulus Package as
share of 2009 GDP (%)
China, People's
Rep. of1.2
Hong Kong 1.4
India 1.6
Indonesia 1.3
Korea, Rep. of 2.5
Malaysia 2.6
Philippines 4.1
Singapore 5.9
Taipei, China 2.1
Thailand 6.4
Source : Oxford Economics, 2009 “Asian Emerging Fiscal Policy. A limit Boost, but China could yet do more”, Emerging Market Weekly, 16 March
Units: Billion US Dollars
Public Debt Management Office, Ministry of Finance - Thailand
* Thai Khem Khaeng (TKK) scheme is a stimulus package initiated to support economic recovery and to help strengthen the country’s medium-term economic competitiveness.
4
5
41.946.0
42.7
52.5
60.3
46.9
14.6
61.7
37.3
0
35
7019
96
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
F
2012
F
2013
F
2014
F
2015
F
2016
F
2017
F
2018
F
Effective Fiscal and Debt Management
Lead to LOWER Public Debt to GDP in the Long RunP
ublic
Deb
t / G
DP
(%
)
(%)Pre-TKK Stimulus Package
Post-TKK Stimulus Package
Public Debt Management Office, Ministry of Finance - Thailand
6
Macroeconomics Indicators Public Debt Management Office, Ministry of Finance - Thailand
Positive signs in Q1/2011
World economic recovery +
expanding domestic demand
resulted in
- higher export
- expansion in tourism
- increasing private investment
- higher farm income
- lower unemployment rate
Economic management for 2011(1) Maintaining stability and increasing level of income
(2) Monitoring prices of commodities
(3) Enhancing competitiveness of Thai economy
(4) Accelerating a regional cooperation in trade and transportation
Source : NESDB May 23, 2011
GDP: back on growth trend
7
Macroeconomics Indicators
Low Unemployment Rate
Historical Policy Rates YoY Inflation Historical Trend
Public Debt Management Office, Ministry of Finance - Thailand
Source: Bloomberg, June 2011
0
2
4
6
8
10
12
Apr
-01
Aug
-01
Dec
-01
Apr
-02
Aug
-02
Dec
-02
Apr
-03
Aug
-03
Dec
-03
Apr
-04
Aug
-04
Dec
-04
Apr
-05
Aug
-05
Dec
-05
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
Dec
-07
Apr
-08
Aug
-08
Dec
-08
Apr
-09
Aug
-09
Dec
-09
Apr
-10
Aug
-10
Dec
-10
%
Thailand EU UK US
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
Thailand EU UK US
Source: Bloomberg, June 2011Source: Bloomberg, June 2011
-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
Thailand EU UK US
Strong External Balance and Export
-2,000
-1,500
-1,000
-500
0
5001,000
1,500
2,000
2,500
3,000
3,500
4,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USD mil
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Trade Balance (left axis) Export growth (right axis)
y-o-y
Source: Bloomberg, April 2011
8
Consensus: Thailand’s fundamentals remain
sound and improving
Thailand’s Baa1 LT Local currency rating reflects medium economic and institutional strength
• International reserves build up• Steady repayment of external debt• External debt reduction• Export competitiveness• Track record of fiscal restraint• Stronger external indicators than the median values of Baa peers and many A-rated countries
Moody’s Thailand Analysis*
Remarks: * Moody’s Thailand Credit Opinion, March 2011
** S&P’s Thailand Report, January 2011
*** Fitch’s Thailand Report, May 2011
Public Debt Management Office, Ministry of Finance - Thailand
Revised LT Local currency IDR up from negative outlook to stable and affirmed rating at ‘A-’
• External finances ‘exceptionally strong’ compared to BBB Median• Capability for external debt repayment and servicing exceeds BBB group• Quicker than expected fiscal stablisation from stimulus programmes
Fitch’s Thailand Analysis***
LT Local currency affirmed at ‘A-’ with stable rating outlook
• Thailand is a significant net external creditor• Prudent fiscal management• Foreign-exchange reserves are likely to exceed USD 170 billion• Government indebtedness is modest (less than 23% of GDP at end of 2010)• Interest burden is kept at only 5.3% of government revenue
S&P’s Thailand Analysis**
10
72%
128%
86%
52%
105%
39%
78%
7%12%
63%
0%
20%
40%
60%
80%
100%
120%
140%
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
(Q
1)
Bank Loan / GDP Equity Market / GDP Bond Market / GDP
Thailand’s Bond Market has Grown Strongly for More Than a Decade
Public Debt Management Office, Ministry of Finance - Thailand
11
10%
57%
0%
20%
40%
60%
80%
100%
0
50
100
150
200
250
300
35019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(Q1)
2012
F
% o
f G
DP
Billion US Dollars
65%
Post Crisis – 2000: Volume Oriented
���� Bond Market Capitalisation tripled
���� Government Bonds
Outstanding grew by 50 times
���� Government Bond Market
Share jumped from 3% in
1997 to 44% in 2000
2007 – 2010 : Development Oriented
���� Regular Benchmark Issuance
���� New Product Development
���� Pro-active Bond Market
Management (BoT and PDs)
Pre-Crisis
- Illiquid Bond Market
- Absence of Benchmark Bond
- Dominated by SoE’s Bonds
- Retail Market
Next Step 2011:
(Market Deepening Oriented)
���� Upgrade PD system
���� Regional Linkage
���� ILB and 50-yr Bond
Public Debt Management Office, Ministry of Finance - Thailand
The Thai Bond Market has Developed Rapidly and Efficiently
11
LB
6.4
LB
7.4
LB
12.8
LB
14.7
LB
13.7
Budget
Deficit
11.7
SB 0.6 SB 0.6
SB 2.7 SB 2.7
SB 0.1
FIDF11.3
P/N 1.0 P/N 1.0
P/N 1.7
P/N 3.5
P/N 1.8
T-Bill4.5
T-Bill-4.2
T-Bill-2.5
Bank Loan1.0
Bank Loan7.9
Bank Loan 2.0
New Instruments2.5
TKK5.0
-2.7
-2.5
-8
-
8
16
24
32
2007 2008 2009 2010 2011 2012
Refinance Bank Loan
Refinance Bank Loan
12
Deep and liquid domestic bond market allows government to meet
funding requirements (tripled as a result of stimulus measures)
Tripled
Billion
US Dollars
USD 28.5 bnUSD 17.6 bnUSD 8.0 bnAnnual Fund raising USD 9.0 bn USD 22.7 bn USD 24.6 bn
Fiscal Year
Public Debt Management Office, Ministry of Finance - Thailand
� Consistent benchmark issuance ���� Benchmark yield curve
� Saving bonds ���� Expand investor base (Retail)
� Low cost bank loan ���� TKK Investment
� ILB � Rising inflation rate trend
� Long-term P/N � Demand from insurance
� LB 50-yr bond � Lengthen portfolio
Strategy FY2011-12
Note: SB – Saving bond for retail investors LB – Loan bond (Thai government bond) ILB – Inflation-linked bond
P/N – Promissory note TKK – Thai Khem Khaeng scheme FIDF – Financial Institutions Development Fund
13
2007 – 2011 Innovation of Gov’t Debt Securities
• Combat low interest rate + Lengthen average time-to-maturity• 4th country in the world (1st : UK 2nd : France 3rd : China)50-yr Loan Bond
• Enhance liquidity of saving bond• To be launched : Sep 2011Saving Bond - ATM
2007-10
2011
• Strong anti-inflationary signal• Deepen the Development of the Bond market• 1st country in Emerging Asian Economies
Inflation Linked Bond (ILB)
• Increase investor base – Insurance / Long-term investors• Non-Benchmark maturityFixed Promissory Note
• Increase investor base – Retail investors• Low interest burden at the initial periods of bondStep-up Saving Bond
• Increase floating debt ratio (5% to 13%)• Promote BIBORFloating Rate Bond
• Lengthen average-time-to-maturity − New Issuing Debt � 6 yrs to 10 yrs− Government Debt Portfolio � 5.7 yrs to 6.3 yrs
30-yr Loan Bond
Public Debt Management Office, Ministry of Finance - Thailand
340,000
30,000
170,000
281,000 261,171
360,000
75,000 82,000
154,000
306,171
-
100,000
200,000
300,000
400,000
Benchmark Bond Non Benchmark
Bond
Saving Bond T-Bill Others
Plan Actual+6%
+150%
-52%
-45%+17%
203,000
65,000 60,000
147,000
42,191
209,530
163,000
80,000
281,000
109,722
-
100,000
200,000
300,000
400,000
Benchmark Bond Non Benchmark Bond Saving Bond T-Bill Others
Plan Actual
+3%+151%
+33%
+91%
+160%
Firm Committed Supply of Benchmark Bond
Regardless of Budget uncertainty
Keep Our Word to get Investor
Confidence for the Plan
Higher government
funding due to the
Stimulus Package I
and II ~ +270,000
MB
FY2009
Lower Borrowing from
Economic Recovery
~ 105,000 MB
FY2010
Total Funding
increase from:
424,691 MB to
696,252 MB (+64%)
Total Funding
decrease from:
801,171 MB to
696,171 MB (-13%)
(Outstanding)
(Outstanding)13
15
Equilibrium of Thailand Bond Market• Issuers
• Credit Rating
• Investors
• 82 percent of Thailand’s debt securities were issued by Government, Central bank
and State-owned EnterprisesIssuers
• 98 percent of Thailand’s debt securities are classified as Investment Grade by local
rating agenciesCredit Rating
• Thailand’s government debt securities are held by a wide group of investor typesInvestors
Thailand Bond Market
(Classified by Issuers)
Thailand Bond Market
(Classified by Credit Rating*)
Government Debt Securities
(Classified by Types of Investors)
Government
39%
Central Bank
36%
SOEs
7%
Private Sector
18%
Other2%
BBB2%A
7%AA3% AAA
4%
Government
39%
Central Bank
36%
SOEs
7%
Insurance and
Other Corporation
25%
DepositoryCorporation
26%
Householdand
Non-profit
17%
TSD(Subbook of
Broker/Custodian)
29%
Government and Central bank 2%
Non-resident
1%
Public Debt Management Office, Ministry of Finance - Thailand
Source: Thai Bond Market Association Source: Bank of Thailand* This is local rating agencies – TRIS / Fitch (Thailand)
16
1.3
0.27
0.81
0.61
0.87
1.16
0.96
1.15
0 1 2
Philippines
Indonesia
Singapore
Malaysia
Thailand
Korea
China
Japan
2011
2010
49.6
Selected ASEAN+3
Government Bond Turnover RatioBond Market Liquidity in Secondary Market
USD 63 bn
USD 524 bn
USD 10,425 bn
USD 2,369 bn
USD 180 bn
USD 105 bn
USD 155 bn
USD 103 bn
Aa2
Aa3
A1
Baa1
A3
Aaa
Ba1
Ba2
AA-
AA-
A
BBB+
A-
AAA
BB+
BB
Moody’s* S & P*
* Source: Sovereign foreign currency ratings, Bloomberg (as of 16 Jun 2011)
** Trading volumes in secondary market and bond turnover ratios are from Asian Bonds Online
Public Debt Management Office, Ministry of Finance - Thailand
16
17
Public Debt Management Office, Ministry of Finance - Thailand
FY07 FY08 FY09 FY10
7%
27%
20%27%
FY07 FY08 FY09 FY10
1.7
3.12.4
3.9
FY07 FY08 FY09 FY10 FY11 H1
70%
76%
78%
80%
84%
FY08 FY09 FY10
USD
7.5
bn
USD
12.8
bn
USD
14.5
bn
1. Trading Volume 2. Turnover Ratio
3. Demand Concentration 4. Auction PriceKey Success Indicators
5 yr Benchmark Bond : Highest Secondary Trading Volume (accounted for ¼ of total trading volume)
5 yr Benchmark Bond : Higher Turnover Ratio
Top 10 Gov’t Bond Series – Accounted for 84% of all Gov’t Bond trading in Secondary Trading Volume
Well developed Benchmark Bond pays off : Even with greater size of issuance, the cost of funding is still at marketrate
+1.2 bps
+1.4 bps
-0.6 bps
5
19
Structure of Thai ILBStructure of Thai ILB
Indicative Terms & Conditions
Format Capital Indexed Bond (similar to Canadian model) with floor
Currency Thai Baht
Tenor 10 years
Programme Size Up to THB 40 billion (USD 1.3 billion equiv.)
Interest Payment Every 6 months
Index Headline CPI
Indexation Lag 3 months
Index Ratio CPI t / CPI 0 (TBMA's calculation)
Expected Real Yield [�]
Repayment Method Bullet
Expected Timing Following Thai election in early July 2011
Public Debt Management Office, Ministry of Finance - Thailand
20
CalculationCalculation
PrincipalRatioIndex C365
Actual ××= ×
xPrincipalRatioIndex )1( −=
Interest Paid (semi-annually)
Inflation-adjusted component on Principal (at Maturity)
where
−×−
+= )CPICPI(TD
1DCPICPI , CPI 3-M2-M3-MRefIssue
C = Coupon Rate (which is equal to Real Rate for ILB)
CPIRef
= Referred Headline CPI @ Interest Payment Date
CPIIssue
= Referred Headline CPI @ Bond Issuance Date
CPIM-2
= Headline CPI @ 2 months prior to the relevant Interest Payment Date
CPIM-3
= Headline CPI @ 3 months prior to the relevant Interest Payment Date
D = Date of Interest Payment
TD = Number of Days in the Interest Payment Month
Calculate Index Ratio on the first interest payment date, July 1, 2011:
when CPIIssue
= 100 (calculated from CPI @ Octorber 2010)
CPIRef
on July 1, 2011 = 103 (calculated from CPI @ April 2011)
from the formula
Hence, Index Ratio on July 1, 2011 = 1.03
Index Ratio =CPIRef
CPIIssue
Index ratio = CPIRef
CPIIssue
Example Thailand*s ILB issued on January 1, 2011 (CPI @ October 2010 = 100 and CPI @ April 2011 = 103)
Date Interpolation
Factor
Each Referred Headline CPI has a
3-month lag time (International ILB
Standard Compliance Purpose)
Public Debt Management Office, Ministry of Finance - Thailand
20
21
• Thailand’s Inaugural ILB issued by MOF will conform with international ILB standards and conventions. This allows investors to compare valuations more easily (UK recently shifted the majority of supply into 3mth lag index-linked gilts).
• Inflation floors offer advantage for investors in times of deflation. Thai ILB approach to inflation floor conforms with international standards.
Comparison of Global ILB Bond Structures
Thailand MOF ILB CANi
UK Inflation-Linked Gilts U.S. TIPS) OATi OAT€i
Reference Index
Thai Headline CPI (monthly)
Canada CPI (monthly)
RPI(monthly)
CPI-U(monthly)
INSEE ex-tobacco (monthly)
EMU HICP ex-tobacco (monthly)
Coupon Frequency and Fixing Method
Semi-annual (post-
determined)
Semi-annual (post-
determined)
Semi-annual (post-
determined)
Semi-annual (post-
determined)
Annual (Post-
determined)
Annual (Post-
determined)
Principal Indexation
Daily with a 3 month lag
Daily with a 3 month lag
RPI with a 3 month lag*
Daily with a 3 month lag
Daily with a 3 month lag
Daily with a 3 month lag
Principal Repayment
Minimum at par Minimum at par No minimum Minimum at par Minimum at par Minimum at par
* Since 2008
Public Debt Management Office, Ministry of Finance - Thailand
22
Reference IndexReference Index
Food
33%
Housing
23%
Transportati
on
23%
Energy
10%
Medical
6%
Education
5%
Food
15%
Apparel
4%
Housing
42%Services
36%
Other
33%
Food
20%
Manaufacur
ing
31%
Energy
9%
Services
41%
Food
15%
Apparel
6%
Housing
12%
Services
51%
Other
10%
Food
22%
Apparel
6%
Housing
35%
Services
20%
Other
17%
ThailandHeadline CPI
USAUS CPI Urban
European UnionEU Harmonised index of
Consumer Price(ex-tobacco)
UKRetail Price Index
MexicoNacional de Precious al
Consumidor
Reflects the changes in local consumer
purchasing patterns
Remarks : Monthly Announcement by Ministry of Commerce
(at the 1st working day of the following month)
Bloomberg ticker : THCPI Index <GO>
Public Debt Management Office, Ministry of Finance - Thailand
23
Next Step: Enhance ILB liquidity
����Develop regular Annual Auction plan (auction every quarter or 6 times a year)
����Top-up the existing tenor to enhance more liquidity
����Issue other Benchmark tenors (3-, 5- and 7-year ILBs)
����Develop Benchmark Real Rate Yield Curve
����Maintain portion of successful bid in ILB primary market
����Maintain portion of ILB trading in secondary market
����Provide firm bid/ask spreads in secondary market
����Encourage SOEs and private sector to issue ILBs
����Cooperate with mutual funds to issue the ILB-related funds
����Allow dealers to develop inflation-related products (e.g. Inflation Derivative)
Public Debt Management Office, Ministry of Finance - Thailand