Published on January 13, 2006

Dhanarak Asset Development’s managing director talks to KI Woo about how his company is successfully securitising future rent proceeds from a yet-to-be-developed government complex.

With the government expected to fund more than Bt450 billion for infrastructure mega-projects in the next four or five years, the recent successful efforts by Finance Ministry-owned Dhanarak Asset Development Ltd (DAD) to begin securitising future government-office rents for Bt24 billion may well prove to be a benchmark for similar financing.

DAD managing director Vimol Janjiravutikul said his company, which operates under the Treasury Department, would use the funds raised during the next three years to build a massive new Civil Service Centre on Treasury-owned land on Chaeng Wattana Road.

“Twenty-eight government agencies will lease facilities in the complex,” he said.

Perhaps more important, he added, by using a securitisation structure to raise funds for government infrastructure, Thailand could keep the funds raised from being considered a public debt.

The new Civil Service Centre will sit on almost 300 rai of land, and the total development will include more than 1 million square metres of office and retail space.

“DAD has set up a special-purpose vehicle [SPV] to raise the funds and will lease the land from the Treasury for 33 years,” said Vimol.

In turn, DAD will then enter a 33-year lease with the Treasury. “It will take us three years to construct it, and the department will then lease the completed building from us for 30 years,” he added.

The Cabinet previously granted the Treasury the authority to enter into the necessary agreements on behalf of the government departments to lease office buildings and set a budget each year for leases and furniture procurement.

“These expenses will be treated as general government operating expenses, to be committed for a full 30 years for leases and five years for furniture procurement,” said Vimol.

In structuring this securitisation, DAD SPV Co will issue a whole range of bonds with tenures of seven, 10, 15 and 20 years. A total of Bt9.5 billion is scheduled to be raised last year, Bt2.5 billion this year and Bt12 billion next year.

“Fitch and Tris gave our bonds a rating of AAA,” said Vimol.

He said DAD SPV was Thailand’s first publicly offered securitisation, and its bonds had been well received by both retail and institutional investors. “It’s the largest and longest-dated domestic securitisation.”

Perhaps more important, DAD SPV bonds will begin serving as benchmarks for baht-denominated bonds with tenures stretching from seven to 20 years.

Published reports have stated that the highly successful initial DAD SPV transaction – completed late last November – consisted of four instalments: two for retail investors and two for institutional investors.

“We were very happy with

our results,” said Vimol.

The two retail instalments, totalling Bt3.5 billion, were fully subscribed to in day one, while the institutional instalments were increased from Bt6 billion to Bt6.8 billion. In total, DAD SPV raised Bt10.3 billion in its initial November bond offering.

Insurance companies, with 64.1 per cent, were the largest purchasers of the bonds, followed by 29.4 per cent for government-related agencies. The transaction was fully underwritten by a four-bank consortium: HSBC Securities, the Government Housing Bank, TMB Bank and Bangkok Bank.

Vimol expects the successful DAD SPV to be the first of a series of securitisations that will be used to fund the government’s proposed mega-projects.

“DAD’s next infrastructure project, the Makkasan Commercial Project, a Bt65-billion centre for Skytrain, subway and airport connections, will probably be financed via a securitisation,” he said.

With 28 employees, DAD was formed to help the Treasury maximise long-term returns from its more than 10 million rai of land throughout the Kingdom.

“The Treasury Department is Thailand’s largest land owner,” Vimol added.

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