* Sovereign to create benchmark for Thai issuers
* Plans to make regular offshore forays
* Foreign bonds would avoid overloading local investors
By Neha D'Silva
May 6 (IFR) - The Kingdom of Thailand is preparing to do its first fixed rate public dollar bond in the offshore market since 1997 and now plans to be a regular issuer, Chularat Suteethorn, the director general for the Public Debt Management Office told IFR in an exclusive interview.
"We have plans to go to the international capital market since we think that it is our job to see that the Kingdom of Thailand is present in the international capital markets and we should have the benchmark for the private sector," Suteethorn said.
Thailand last issued dollar bonds in 2006, a small US$200m floating-rate private placement that Standard Chartered led. The sovereign has not issued fixed rate dollar-denominated bonds in the foreign public market since 1997.
Suteethorn justified the change of heart after such a long absence by indicating that the sovereign needs to create a benchmark for other Thai issuers planning to go to the dollar market. "After this, we plan to issue regularly in the capital markets. It is our job to make sure the Kingdom of Thailand is present in the international capital markets at all times."
However, going to the offshore market also addresses a concern of local bankers and issuers. Thailand was faced with large funding needs to finance reconstruction efforts after severe floods in 2011. Given the sovereign's exclusive reliance on the local markets, there were concerns that all the liquidity would be drained into sovereign bonds.
By going abroad, the Kingdom would avoid drawing all of the local funding available to itself. "Since we have plans to invest both in water management and logistic infrastructure in the next seven years, amounting to Bt2trn (US$67bn), we also have to see the opportunity to tap money from outside (Thailand) and to have the plan ready in case there is some crowding out in the domestic market," Suteethorn said.
Despite the clear plans, the sovereign's debt management officials were still in early stage discussions with bankers. No request for proposals had been circulated so far.
Suteethorn said the debt office was considering five-, 10- and 30-year bonds, but no decision had been made about the tenors of planned fundraisings.
"We have to see all possible options and which one is appropriate for using the money and appropriate for our portfolio and being the benchmark," Suteethorn said. "It's still under study, so no decision yet; we have to monitor and follow the capital markets carefully before making any decision."
Suteethorn said the sovereign is still considering the timing of a bond offering. "(We have) not set any timeframe for the issue (but) it is planned for this calendar year," she said.
Suteethorn said that, even though the sovereign is looking at the foreign markets, there is no shortage of local capital available. "The liquidity in the domestic market is quite ample, so we can tap the domestic financial market at a very good rate," she said.
In fact, the funding official said the Bt1trn the government needs this year is expected to be raised mostly in the local market. Of that, some Bt300bn will be the result of an expected budget deficit and some Bt350bn will be to fund a water management project.
In addition, the sovereign is developing new funding options in the local market. "We are studying zero-coupon bonds and different kinds of retail savings bonds," Suteethorn said. "We used to issue different kinds of savings bonds for retail investors (some featuring) step-up interest. This we may issue again, apart from the straight interest rate savings bonds," she said.
Besides that, Suteethorn said Thailand may extend its inflation-linked curve to 20 and 30 years by 2015. In January, Thailand issued a Bt40bn 15-year inflation-linked local bond that priced with a coupon of 1.25% and extended the linker curve beyond 10 years for the first time. (Reporting By Neha D'Silva; Editing by Christopher Langner)