Private sector takes debenture route to raise needed funds

This indicates that as an upward interest-rate trend is likely, the private sector needs to save on interest costs.

KResearch's analysis projected that at least Bt94 billion worth of debentures would have been launched in the first five months of this year. Bond issuance slowed down at the beginning of the year but new issues are now increasing. The private sector has been raising funds for its business activities. The improved  economic and political situation is contributing to private investment expansion.

Meanwhile, commercial banks need to prepare themselves for Basel II supervision by strengthening their tier-2 capital.

Since the private sector expects the domestic interest rate to rise, the present time is seen as appropriate to issue bonds while the interest rate is close to the bottom.

The inflation rate reached 6.2 per cent in April, the highest in two years, and the Bank of Thailand also revised upward its inflation rate forecast for 2009-2010 as well as its GDP growth rate. Hence, monetary policy is expected to increase the policy interest rate.

It is believed that the Thai private sector will issue more debentures compared to last year. The Thai Bond Market Association has forecast that private bond issues will rise to Bt250 billion to Bt300 billion this year, compared to Bt185 billion last year.

Most of them will offer floating interest rate. For example, a fixed-interest rate would be offered for the first two years. After that the rate would be higher in each year of maturity. The private sector is also preparing a floating interest rate with reference to a six-month fixed savings interest rate.

Commercial banks will also provide one to three-year fixed savings products with rates referring to the general fixed savings interest rates and adding 0.25 per cent of margin.

The situation benefits investors as these products will provide sources of investment with higher interest rates. Investors should consider products that offer a floating interest rate.