Published on May 13, 2005

Kasikorn Asset Management to run Bt3.8-bn single-country ABF2 fund

The ABF Thailand Bond Index Fund was officially launched yesterday with US$96.2 million (Bt3.8 billion) in international seed money.

Kasikorn Asset Management will manage the fund, which is part of the Asian Bond Fund (ABF) initiative, and will later sells unit trusts in the fund to the public in an initial public offering (IPO), which will be floated by the end of third quarter. The initial rate of return will be about 4 per cent, said the manager of the fund.

Bandid Nijathaworn, deputy governor of the Bank of Thailand, said the ABF Thailand Bond Index Fund is one of eight single-country funds forming an integral part of the Asian Bond Fund 2 (ABF2), which was launched in December 2004. The first fund under the ABF initiative – the $1-billion ABF1 – was launched in June 2003.

Both ABF1 and ABF2 are funded by the Executives’ Meeting of East Asia and Pacific Central Banks (EMEAP) group, and derived from the international reserves of the 11 participating countries: China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, Australia, Japan and New Zealand. The reserves contributed to the ABF2 were used as seed money for the eight single-market funds.

The EMEAP group’s goal is to broaden and deepen the domestic and regional bond markets within Asia.

The ABF Thailand Bond Index Fund will initially be a private fund. But it will soon be transformed into an open-ended fund or “exchange-traded fund” that will be traded on the Bond Electronic Exchange (BEX), the country’s secondary market for bonds.

Unit trusts in the open-ended fund will be sold to retail and institutional investors by the end of the third quarter, Bandid said.

The $2-billion ABF2 comprises eight single-market funds totalling $1 billion, and the ABF Pan-Asia Bond Index Fund (PAIF) – also worth $1 billion.

The PAIF is a single bond fund investing in sovereign and quasi-sovereign local currency-denominated bonds issued in eight EMEAP markets, excluding Australia, Japan and New Zealand.

The eight single-market funds will each invest in sovereign and quasi-sovereign local currency-denominated bonds issued in their respective EMEAP markets.

Dayana Bunnag, president of Kasikorn Asset Management, said the company would manage the ABF Thailand Bond Index Fund in line with guidelines laid down by the International Index Company – an entity set up by EMEAP to advise constituent ABF funds on how to divide up their investments.

Eighty-eight per cent of the fund’s total assets should be invested in government bonds, 8 per cent in Finance Ministry-guaranteed state-enterprise bonds, and the remaining 4 per cent in large state-enterprise bonds and international organisations’ bonds. The investment proportion will be adjusted monthly depending on new bond issuance and bond maturity.

It will invest chiefly in five-year bonds.

“This is an innovative financial product that is managed in line with an index. It adds an alternative choice of investment for investors in the debt market in Thailand,” Bandid said.

Dayana said the fund’s unit trusts would be highly liquid as there would be more than five market-makers – dealers or brokers in the bond market – to boost transactions.

They will be able to quote bid and offer prices in much the same way as in the stock market. The net asset value of the trusts will be quoted in real time.

Retail investors will be able to buy the unit trusts from Kasikorn Asset Management during its IPO.

After the IPO, they will have to buy from the market-makers.

The open-ended fund is suitable for all types of investors, but particularly medium and long-term players. But the unit trusts should also be attractive to short-term investors preferring stock-market-type movements, Dayana said.

Anoma Srisukkasem

The Nation

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