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Thailand to Sell Record Debt After Floods, Bond Association Says

Thailand is expected to sell the most debt on record this year as infrastructure is rebuilt following the worst floods in seven decades, according to the Thai Bond Market Association.

The government plans to sell about 500 billion baht ($16.3 billion) of bonds in the first nine months of 2012, compared with 512 billion baht for the whole of 2010, which was the most since the TBMA began collecting the data in 2002, the group’s President Niwat Kanjanaphoomin said in an interview in Bangkok. Thai companies may sell 300 billion baht of debt this year, the most since 2009 and up from 212 billion baht in 2011, Niwat said.

Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht on water-management projects to avoid a repeat of last year’s floods, which spread across two-thirds of the country and crippled thousands of factories. PTT Pcl, Thailand’s biggest company, last month revived a planned sale of 20 billion baht of bonds that it postponed in November, and Bank of Ayudhya Pcl plans to sell 20 billion baht of debt to fund new loans.

The yield on Thailand’s five-year government bond has dropped 28 basis points in the past six months to 3.22 percent yesterday and the rate on corporate notes has slumped 51 basis points to 3.5 percent, according to data compiled by Bloomberg and the TBMA.

“Yields are shifting down, giving lower costs for the issuer, and it’s also time to restart projects and new investment postponed after the floods,” Niwat said. “The government has a plan to use its budget to restore confidence and build some protection from the floods, so we will have more issues from the government and corporates.”

Flood Damage

The TBMA’s forecast for bond sales in the first nine months of this year excludes potential government debt offerings as part of its 350 billion-baht budget for improving waterways, Niwat said.

Thailand’s economy probably shrank 5 percent in the three months through December from a year earlier, according to the median estimate of 14 economists surveyed by Bloomberg before a Feb. 20 report. That would be the first decline since 2009.

“Without external factors, an increase in issuance is negative for Thai bonds,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “There is concern that the fiscal situation will further deteriorate for Thailand, more so due to the floods.”

Thailand’s long-term local-currency debt is rated A- by Standard & Poor’s, two levels below South Korea and one step below Malaysia. South Korea’s five-year government bond yield is 3.56 percent and Malaysia’s is 3.16 percent.

Bank Fees

Thai financial institutions are also selling more debt as they prepare to start paying higher fees in July, Niwat said. Banks will pay an annual amount equivalent to 0.47 percent of their total deposits, up from 0.4 percent, to help repay state debt, the government and the central bank said this month.

Global funds will probably buy more Thai securities because of uncertainties surrounding Europe’s debt crisis, Niwat said. He expects foreign holdings of Thai government bonds to increase to more than 500 billion baht by the end of this year from 442 billion baht in January. The government has 5.2 trillion baht of outstanding debt, according to TBMA data.

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