April 26, 2011
Thirachai Phuvanatnaranubala
Secretary-General
Securities and Exchange Commission, Thailand
Chairman
ASEAN Capital Markets Forum
Thai Baht Bond Markets
2
Outlines
I. Market overview
II. Measures taken to grow the bond market
III. Key development in the future
53 59 65 463 630 725 929 1,361 1,498 1,787
2,211 2,634
3,271 3,397 4,182
5,007
238 278 294 301
356 409 416
396 412 405
489 493
522 518
533
502
134 182 188 178
402 501
538 543 607
548
667
959
1,093 1,164
1,400
1,247
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
THB Billion
Government
State OwnedEnterprise
Corporate
Outstanding Value
3
Pre Crisis Post Crisis
• No need to issue government bond due to continued fiscal surpluses
• Lack of a risk-free benchmark to price corporate bond
• Few issue of corporate bonds • Bank loans were main source
of corporate funding
• Government had to issue bonds to fiscalize financial restructuring and to finance government projects
• Benchmark now available for market reference
• Corporate bond market has become an alternative for corporate funding
• Limited deposit guarantee will open way for more corporate bonds
Source: ThaiBMA
30 THB = 1 USD
Outstanding Value per GDP
4
1 1 1
10
14 15
18
25 2528
3134
38 37
46
50
6 6 6 6
8
8 8 7 7 6 7 6 6 6 6 53 4 4 4
9 10 10 10 10 8 912 13 13
1512
0
10
20
30
40
50
60
% of GDP
Government
State OwnedEnterprise
Corporate
Source: ThaiBMA, NESDB
The proportion of corporate bonds is still low
73
57 54
11
11 12
16
32 34
0
20
40
60
80
100
- - -
Bank loan Bond Equity
%
75
15
-
38
25
47
-
20
40
60
80
100
Bank Loan Bond Equity
%
5
Corporate Financial Structure
Thai Financial Assets
Source: IMF, World Federation of Exchanges, BIS
Financial Structure of Siam Cement Group
Source: Stock Exchange of Thailand
Proportion of bank loans has decreased steadily
Large listed cos. (such as Siam Cement Group) continually switched to bond financing after 1997 crisis
Profile of Corporate Bond Issuers
6
Bank 20%
Fin9%
Energy26%
Othe rs 14%
Transport6%
Prope rty10%
ICT4%
Cons truc t Ma te ria l11%
28
187
29 15 18 43 10 18 51 22 107
74 75 9
133
141
91 89
152
138
261 177 228
199
389
209
-
100
200
300
400
500
Bank Non-bank
THB Billion
Source: Securities and Exchange Commission Source: ThaiBMA
Issuance Value Classified by Business Sector Outstanding Value Classified by
Business Sector : 2010
The market gained momentum after 1997 crisis, starting with banks recapitalization bonds in 1998-1999
Issuance is dominated by bank and energy sectors, reflecting their weights in the stock exchange
Profile of Corporate Bond Holders
7
Source : ThaiBMA
Note : /1Financial Institutions include EXIM, GHB, GSB banks
/2 Including life and non-life insurance companies
/3 Including government pension fund, provident funds and social security fund
/4 Including the government sector, foundation, co-operatives, temples etc.
Corporate Bond Holders: 2010
Ind ividua ls45%
Othe rs /4 12%
Corpora tions 5%
Contrac tua l Saving Funds /3
13%
Mutua l Funds10%
Insurances /2
10%
Com Banks & Fin Ins ti . /1
6%
Almost half are held by individuals who buy-and-hold
Daily Average Trading Value
8
1,419 4,356 5,434 7,290 6,460 6,645 10,731
16,870
42,115
69,421
58,820
67,673
207 842 567 459 313 272
449
345
293
385
325
179
134 297 368 359 799 429
319
387
582
489
710
775
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
THB Million
Government
State OwnedEnterprise
THB Million
Corporate
Source: ThaiBMA
Market liquidity took time to improve
Trading active on government bonds
Corporate bonds still inactive due to relatively small issue size and investors’ buy-and-hold strategy
30 THB = 1 USD
31 2732
26
69 7368
74
0%
20%
40%
60%
80%
100%
- - -
Dealers to Clients Inter Dealers
Profile of Trading Participants
9
Insurances 3%
Othe rs 13%
Fore ign co . 11%
Dom es tic co .15%
Mutua l Funds55%
Gov. Pens ion Fund and Soc ia l Securi ty Fund
4%
Source: ThaiBMA
Dealers to Clients: 2010 Outright Trading Value
A major part of total transactions came from trading value between dealers and their clients
Mutual funds are major players in the secondary bond market
10
Outlines
II. Measures taken to grow the bond market
I. Market overview
III. Key development in the future
Developing benchmark yield curve
11
Enacting law allowing government to issue bond during a fiscal surplus
Regular issuance of 5, 10, and 15-yr government bonds
Pre-announcement of auction calendar on a quarterly basis without cancelation
Reopening of benchmark issues to ensure criticalissue sizes
Active two-way quotation by primary dealers
Introduction of Primary Dealer System
12
Introduced in 2000, currently there are 9 PDs in the market
Biannual performance review by the Bank of Thailand
PDs’ obligations:• Always bid for their shares of government securities allotted in the
primary market
• Act as market makers and to provide daily two way quotations for outstanding government bond issue
PDs’ privileges:• Rights to summit Non-Competitive Bids (NCB) on behalf of their
customers
• Act as advisors to the Ministry of Finance for planning of government bond issuance and to Bank of Thailand in developing the bond market
Reforming Bond Issuance Rules
13
In 2001, introduced 1-year shelf approval and shortened timeline for filing from 45 days to- 15 days for listed company- 30 days for non-listed company
In 2006, extended shelf filing from 1 to 3 years- Initial filing became effective within 30 days- Subsequent filings became effective within 3 days
In 2009, further shortened timeline for filing :For PO, - Initial filing, shortened from 30 to 14 days- Subsequent filings, shortened from 3 to 1 dayFor PP, shortened from 3 to 1 day
Improving Disclosure Requirement
14
Changing from merit-based to disclosure-based
Risk assessment from financial and operational perspectives
must be disclosed in greater details
Large financial exposures must be highlighted with
accompanying explanation and assessment of their
impacts on the company’s financial position
Developing Accounting Standards and Quality Assurance of Audit
15
Quality Assurance of Audit
▪ Audit firms of listed companies are required to have quality assurance system according to the international standards
▪ SEC conducts regular inspection on Quality Assurance
Accounting Standards
▪ International Reporting Standards (IFRS) to be fully adopted in Thailand
▪ Currently, there are 19 Thai accounting standards in accordance with IFRS, most of which will take effect this year and the rest by 2013
Promoting Asset Management Business
16
Minimum fund size of THB 50 Billion (US$ 1.5 Billion) was lifted
Auto approval of mutual funds with non-complicated investment policy
Allowing more types of assets for fund investments such as structured notes and interest rate derivatives for hedging purpose
Allowing mutual funds to participate as bond lenders in repo transaction
Enhancing Market Transparency and Surveillance
17
Market Transparency SEC designates Thai Bond Market Association (ThaiBMA) to be bond
information center, pricing agency All corporate bonds must be registered at ThaiMBA where public
disclosure is centralized Dealers must report daily trading transactions to ThaiBMA for further
disclosure to the public Closing prices are screened daily by ThaiBMA before announcement
for use in marking to market
Market Surveillance ThaiBMA conducts off-site market surveillance on daily trading
transactions, and also on-site inspection of dealer members If there is a breach of securities law, ThaiBMA has to inform SEC
immediately
Allowing Foreign Firms to Issue Local Currency Bond
18
Began in 2004, outstanding value as of 2010 was US$ 2.4 Billion
Annual quota set by the Bank of Thailand is increased this year from US$ 1.6 Billion to US$ 4.8 Billion due to high demand
Issuers include ADB, JBIC, Citigroup, Deutsche Bank, Korea Exim Bank, etc.
SEC works closely with the Ministry of Finance and the Bank of Thailand to revise the annual quotas and conduct market consultation with issuers
Development of New Products
19
Government is planning to issue inflation-linked bond to the public in Q3 this year
PTT group, the Thai largest conglomerate, has successfully pioneered the following bonds in local market Q4 2010:
• Century bond • Foreign currency bond
The rules for Islamic Sukuk bonds was issued in January this year
SEC is also drafting rules to allow municipal authorities to issue bonds, expected to be announced this year
20
Outlines
III. Key development in the future
I. Market overview
II. Measures taken to grow the bond market
Enhancing Liquidity of Corporate Bonds
21
Amending rules to allow reopening of old issues for corporate bonds in the same way as government bonds
Encouraging corporate bond underwriters to act as market makers in a secondary market
Exploring the possibility of using corporate bonds with the highest rating as collateral for repo transaction
Making regular consultation with stakeholders to improve related rules
Supervision of Credit Rating Agencies
22
To increase competition and strengthen credit rating business,
SEC plans to do the following by H2 this year:
Allowing foreign CRAs to provide ASEAN scale rating for domestic bond issuance
Reviewing rules governing CRAs to be fully in line with the new IOSCO Code
To waive rating requirement for bond offering to high net-worth individuals and institutional investors
Providing Investor Education
23
Introducing “product fact sheet” that highlights the main features in short simple language to help investors understand the investment risks
“Financial Literacy” has been set as a national agenda involving various agencies and will be rolled out nationally this year. It will cover all types of securities, equities and bonds included.
Developing Hedging Instruments
24
Interest rate futures were launched Q4 last year but as yet no active trading
Major problems are:
• Major investors still hold bonds to maturity• May have to review capital charges for banks’ OTC
interest rate swap with their counterparties• Banks hold bonds mostly in long term book, with no
need to mark to market their portfolios
SEC is coordinating with TFEX (derivative exchange) and the Bank of Thailand to address these issues
Integrating ASEAN Capital Markets
25
Paving the way to launch debt issues simultaneously across ASEAN countries by using the same set of documents
Measures that are being worked on:
• Adoption of a common ASEAN Disclosure Standards
• Additional requirements by each jurisdiction caused by different business and legal environments (Plus Standards) are to be systematically reduced
• Mutual recognition of credit rating agencies within ASEAN
• Acceptance of the ASEAN scale rating
26
Q & A