SCB bonds 'good for diversification'

Investors are seeking channels to help them beat inflation,

which is forecast by the Bank of Thailand to rise to 4-5 per cent this year.

SCB said it would issue the subordinated bonds worth Bt20 billion to fund expansion and boost Tier-2 capital. Fitch Ratings has assigned "AA-" to the issue.

Subscription is open from next Monday to Wednesday with a minimum purchase of Bt100,000.

SCB will pay fixed-to-floating interest every six months for the 10-year debentures as the coupon rate for the first to second year is 4.25 per cent, the third to sixth year is 5.25 per cent, and the seventh to 10th year is 6.25 per cent.

Nattapol Chavalitcheevin, president of the Thai Bond Market Association, said yesterday the coupon rate for SCB's debentures, at slightly higher than 5 per cent for the entire maturity, is not much higher than the current interest rate trend.

Considering the five-year government bond yield of 4.1 per cent, plus the premium for AA- rated bonds of 70 basis points and 70 basis points for subordination, the total yield should be about 5.5 per cent, which is about what SCB is offering, he said.

"If you think that interest rates will rise in the future, the coupon rate offered by SCB is not very attractive.

"But investors wishing to hold corporate bonds could allocate part of their money for the bank's debentures [for portfolio diversification]," he added.

A source from a major bank said the coupon rates set by SCB for its bonds were not that appealing as the average return is at around the market rate.

Thanachart Bank will also soon offer seven-year subordinated bonds carrying a 5.1-per-cent coupon rate for the first three years and 6 per cent for the final four years.

There is no call option for the small bank's subordinated debentures, though the bank's rating is lower than SCB's. The average return is 5.4 per cent.

However, SCB may exercise its right to redeem the debentures after five years have lapsed, in which case it will pay 25 basis points in extra interest.

Kasikornbank issued 10-year subordinated debentures in 2003. Five and a half years are left until maturity and the bonds are currently yielding 5.3 per cent annually, Nattapol said.

Advanced Info Service late last month sold five-year unsecured debentures worth Bt4 billion that offer 4 per cent for the first two years and 4.9 per cent for the remaining period.

Ch Karnchang also last month issued three-year unsubordinated debentures worth Bt2 billion and carrying a coupon rate of 5 per cent.

Aside from debentures, some banks issue bills of exchange for the public. Bank of Ayudhya has sold nine-month B/Es earning 3 per cent on a yearly basis, while Siam City Bank offers three-, six- and 12-month B/Es with annualised returns of 3 per cent, 3.125 per cent and 3.25 per cent, respectively.