Thailand’s First Inflation Linked Bond · 3-2.3 % 7.8 % 4.0 %-5% 0% 5% 10% 15% 2008 2009 2010...

1

Project Funding For Infrastructure Development in Bangkok

Launching of

Thailand’s First Inflation Linked Bond

20th – 25th June 2011

London – UK, SG, HK Last Updated: July 4th , 2011

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 made available 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.

Disclaimer Public 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

China India

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)

Logistic

12.3

28%

Agriculture

7.5

18% Energy

5.2

12%

Education

4.7

11%

Community

Investment

4.7

11%

Others

5.0

12%

Public Health

3.6

8%

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

701996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F

2012F

2013F

2014F

2015F

2016F

2017F

2018F

Effective Fiscal and Debt Management Lead to LOWER Public Debt to GDP in the Long Run

Pu

blic D

eb

t / G

DP

(%

)

(%)

Pre-TKK Stimulus Package

Post-TKK Stimulus Package


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


Source: Bloomberg, June 2011

0

2

4

6

8

10

12

Apr-

01

Aug-0

1

Dec-0

1

Apr-

02

Aug-0

2

Dec-0

2

Apr-

03

Aug-0

3

Dec-0

3

Apr-

04

Aug-0

4

Dec-0

4

Apr-

05

Aug-0

5

Dec-0

5

Apr-

06

Aug-0

6

Dec-0

6

Apr-

07

Aug-0

7

Dec-0

7

Apr-

08

Aug-0

8

Dec-0

8

Apr-

09

Aug-0

9

Dec-0

9

Apr-

10

Aug-1

0

Dec-1

0

%

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 2011 Source: 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

500

1,000

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


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**

9

Thai Bond Market

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

(Q1

)

Bank Loan / GDP Equity Market / GDP Bond Market / GDP

Thailand’s Bond Market has Grown Strongly for More Than a Decade


11

10

%

57

%0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

300

350

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)

20

12

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


The Thai Bond Market has Developed Rapidly and Efficiently

11

LB8.2

LB7.4

LB12.8

LB14.7

LB13.7

Budget Deficit

11.7

SB 0.2 SB 0.6

SB 2.7

SB 2.7

SB 0.1

FIDF11.3

P/N 1.6 P/N 1.0

P/N 1.7

P/N 2.0

P/N 1.8

T-Bill4.5

T-Bill-4.2

T-Bill -2.5

Bank Loan1.0

Bank Loan8.7

Bank Loan 2.0

New Instruments2.5

TKK5.0

-2.7

-3.9

-8

0

8

16

24

32

2550 2551 2552 2553 2554 2555

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 28.0 bn

Fiscal Year


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

Remark: 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

Total Fund raising USD 28.2 bn USD 18.3. bn USD 10.0 bn USD 9.0 bn USD 22.7 bn

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 2011 Saving 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 maturity Fixed Promissory Note

• Increase investor base – Retail investors

• Low interest burden at the initial periods of bond Step-up Saving Bond

• Increase floating debt ratio (5% to 13%) • Promote BIBOR Floating 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


20

3,0

00

65

,00

0

60

,00

0

20

0,5

00

43

,19

1

20

7,2

70

17

5,9

99

80

,00

0

28

1,0

00

80

,69

2

0

100,000

200,000

300,000

Benchmark Bond Non Benchmark Bond Saving Bond T-Bill Others

Plan Actual

31

0,0

00

60

,00

0

17

0,0

00

28

1,0

00

26

1,1

7130

9,8

26

13

1,0

00

82

,23

3

15

4,0

00

32

1,1

71

0

100,000

200,000

300,000

400,000

Benchmark Bond Non Benchmark Bond Saving Bond T-Bill Others

Plan Actual

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 ~ +200,000 MB

FY2009

Lower Borrowing from Economic Recovery ~ 84,000 MB

FY2010

Total Funding increase from:

424,691 MB to 624,461MB (+47%)

Total Funding decrease from:

801,171 MB to 717,230 MB (-10%)

(Outstanding)

(Outstanding) 14

+2% +170%

+33%

+40%

+86%

+118%

-51%

-45%

+22% 0%

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 Enterprises Issuers

• 98 percent of Thailand’s debt securities are classified as Investment Grade by local rating agencies Credit Rating

• Thailand’s government debt securities are held by a wide group of investor types Investors

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%

Other

2%

BBB

2% A

7% AA

3% AAA

4%

Government

39%

Central Bank

36%

SOEs

7%

Insurance

and

Other Corporation

25%

Depository

Corporation

26%

Household

and

Non-profit

17%

TSD

(Subbook of

Broker/Custodian)

22%

Government

and

Central bank 2%

Non-resident

8%


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

49.6

Selected ASEAN+3 Government Bond Turnover Ratio

Bond 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


16

FY07 FY08 FY09 FY10 FY11 H1

7%

27%

20%27%

18%

FY08 FY09 FY10 FY11 H1


1.7

3.12.4

3.9

2.2

17


1. Trading Volume 2. Turnover Ratio 3. Demand Concentration 4. Auction Price

Key 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 market rate

+1.2 bps

+1.4 bps

-0.6 bps

5


70%

76%

78%80%

84% +0.4 bps

USD

7.5

bn

USD

12.8

bn

USD

14.5

bn USD

9.5

bn

18

ILB Features

19

Structure 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


20

Calculation PrincipalRatioIndex C

365

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)


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


22

Reference Index

Food

33%

Housing23%

Transportation

23%

Energy10%

Medical6%

Education5%

Food15%

Apparel4%

Housing42%

Services36%

Other33%

Food20%

Manaufacuring31%

Energy9%

Services41%

Food15%

Apparel6%

Housing12%

Services51%

Other10%

Food22%

Apparel6%

Housing

35%

Services20%

Other

17%

Thailand

Headline CPI

USA

US CPI Urban

European Union

EU Harmonised index of

Consumer Price (ex-tobacco)

UK

Retail Price Index

Mexico

Nacional 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>


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

Co

nti

nu

ing

Issu

ance

P

D’s

re

spo

nsi

bili

ty

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)

Pri

vate

se

cto

r’s

par

tici

pat

ion


Thailand’s First Inflation Linked Bond · 3-2.3 % 7.8 % 4.0 %-5% 0% 5% 10% 15% 2008 2009 2010...

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Transcript of Thailand’s First Inflation Linked Bond · 3-2.3 % 7.8 % 4.0 %-5% 0% 5% 10% 15% 2008 2009 2010...