ASIA CREDIT-Thai firms rush to sell bonds before rates go up

By Orathai Sriring and Arada Therdthammakun

BANGKOK, May 16 (Reuters) - The value of new corporate bonds issued in Thailand could rise by half this year and many firms want to sell them sooner rather than later to lock in low costs, as inflation could well force a rise in interest rates.

New issues worth 250-300 billion baht ($7.7-9.3 billion) are expected this year, compared with 195 billion last year, and a good proportion is likely to be sold in the first half, company officials and underwriters said.

"Nobody knows whether Thai rates have hit bottom. But funding costs now are still acceptable, so we decided to do it now," Chainarong Eursithichai, an executive at Krung Thai Bank, said of an issue of 28 billion baht of 10-year bonds later this month.

It is among several banks and companies that have already announced bond issues worth at least 88 billion baht by the end of June. Some might be increased, depending on demand.

Firms sold 65 billion baht of bonds in the first four months of the year, up 75 percent from a year earlier.

"We see rates moving up soon, and bond yields, so firms should rush to tap demand in the market or it will probably be too late," said another bank executive, who declined to be named.

Government bond yields <0#THTSY=> <0#THBMK> have risen up to 20 basis points (bps) since April after falling earlier this year, especially at the front end, on hopes of rate cuts in Thailand in response to a global economic slowdown.

Five-year government bond yields bonds TH5YT=RR were at 4.3 percent and seven-year debt TH7YT=RR at 4.67 percent on Friday. A five-year AAA-rated corporate bond yield was about 4.4 percent.

The rate outlook reversed after oil-fuelled inflation jumped to a two-year high of 6.2 percent in April. It may go still higher, raising the risks of a rise in interest rates, which have been kept steady since last July after five cuts earlier in 2007.

The Bank of Thailand is expected to leave its policy rate at 3.25 percent at its next meeting on May 21. [ID:nBKK52886]

The longer-term outlook is unclear. in contrast to the thinking in the bond market, some analysts say rates could be kept steady for the rest of the year as Thailand's new government wants to boost consumption and investment to support growth after after two years of political strife and a 2006 military coup.

LOCAL DEMAND

Before the coup, and the capital controls introduced by the authorities in late 2006 aimed at holding down the baht, foreigners were estimated to account for about 30 percent of activity in Thailand's government bond market.

These days it is about 3 percent, according to the Thai Bond Market Association, even after capital controls were lifted in March.

Corporate bonds are mostly illiquid, so foreign interest is low and locals dominate.