IFR Asia: Koreans march to baht

IFR Asia, March 2012

When Thailand decided to open its doors for foreign issuers to sell bonds in baht, what it actually got was a flood of Korean borrowers. Still, the concentration of interest isn’t bothering anybody so far; Thais get familiar names with a high rating and some diversification, while Koreans get to make a saving compared to other sources of funds.

Three times a year, Thailand’s Ministry of Finance invites foreign entities to apply to issue in baht, with deadlines in March, July and November. It then comes out with a list of approvals, usually two months later, specifying how much issuers can raise and when they need to do so by. “The consideration for the Ministry of Finance in deciding whether to approve the applications is, one, whether they money will be used onshore, two, what the impact will be on the swap markets, and three, whether the credit profile is strong enough,” explains Augusto King, co-head of debt capital markets for Asia at RBS. “You’re talking about at least single A internationally before you can tap the local market. It has to be a very good rating in order to allow onshore investors to buy.”

The most recent round of approvals came on January 9, when the ministry approved seven names. Five of them were Korean: Hana Bank, Industrial Bank of Korea, Korea Development Bank, Export-Import Bank of Korea (Kexim) and Korea National Oil Corp. Additionally, ANZ and Citigroup received approval. It is not known if many others applied and were refused, but anecdotally, it is understood Thailand has been reluctant to approve European names.

“The Thais are concerned about foreigners taking liquidity from the swap market,” says King. “My last conversation with the Ministry of Finance indicated that if you’re thinking of bringing a European name, they would need to spend a bit more time considering it.”

Many of the names in the January round were familiar: Kexim, IBK, KDB and Hana had all sold baht-denominated bonds prior to 2012. “I don’t think they’re encouraging Korean issuers per se,” says another banker. “They are encouraging foreign issuers. But it’s Korean issuers who have been applying and who have been getting picked up.”

The seven approved entities may raise a combined total of Bt66 billion, or about US$2 billion. This has already proven a successful niche: nine foreigners issued in baht in 2011. Most recently, Hana Bank raised Bt 10 billion (US$324 million) in a two-part issue in January, Bt8 billion of it in three-year funds at 4.68%, and Bt2 billion in seven-year paper, at 4.49%. Kasikorn Bank and Standard Chartered Bank were joint leads on the deal. The bonds were rated AAA(tha) by Fitch Ratings Thailand. Earlier in the month, Woori Bank had raised Bt5 billion in a three-tranche deal: Bt2.5 billion of three-year paper at 4.08%, Bt1.5 billion of four-year at 4.22%, and Bt1 billion seven year at 4.47%. That deal was led by HSBC and was also rated AAA(tha).

For the Koreans, one banker says the deals have offered savings on an asset-swap basis, bearing in mind the combination of the local currency fixed rate required to get the deals away, and the cross-currency swap rate. “It’s all to do with savings,” he says. “If they can save, they will do it; if they can’t, they don’t.” He cites the example of Shinhan Bank, which was given approval in a previous round but eventually didn’t bother as the pricing economics did not stack up. “It was a function of after-swap costs. Korean banks fund across so many jurisdictions; it’s purely determined by where they get the bang for their buck.”

Bankers have been rather impressed by the depth of the market. “Ten billion baht, as Hana did, is not a small amount,” says one banker. “It was done relatively easily, with a long tenor, which is relatively rare in these markets.” But the long tenor was part of the appeal for local investors who were keen to diversify the maturity of their portfolios. “That was clearly something that appealed to investors. And from a credit perspective, Thai investors have been long standing supporters of Korean credit.”

For the Ministry itself, it gains depth in its domestic corporate bond market by allowing foreign issuers in. However, in the past approved foreign entities have often used only part of their allowance, reflecting the fact that both bond and swap markets need to be aligned for issuance to make sense. Thailand will be keen to see allocations used in full this year; it will be no surprise if the majority of it comes from familiar Korean names.