Retail investors 'saved the country's economy'

"While other countries, as far as I know, still depend on funding from institutional investors (for corporate bonds), retail investors in Thailand have been the saviours of the country's economy," Nattapol Chavalitcheevin, president of Thai Bond Market Association, said yesterday.

In June, retail investors held 45 per cent of total corporate bonds, a jump from 38 per cent a year ago.

While it has been trying for banks to lend amid the economic crisis and the stock market has not been in a good mood, institutional investors have shunned longterm corporate bonds out of concern for bond credit rating downgrades that might hurt their bond portfolios. Most asset management firms turned to investing offshore.

This situation, however, has become a winwin for individual investors seeking higher returns and corporate issuers seeking more capital. With demand robust for corporate bonds, companies shifted to public offerings.

During the first nine months of this year, bond issuance via public offerings jumped to 89 per cent of the total, from 74 per cent in the same period last year, while private placements, which are a main channel for institutional investors, fell from 26 per cent last year to 11 per cent.

In the first three quarters of this year, new corporate bond issuance was worth about Bt350 billion, a new high. Thai BMA predicts that this quarter would see corporate bond issuance of Bt57 billion. That brings corporate bond issuance for the whole year to Bt400 billion, also a historic high, from Bt280 billion last year.

In the secondary market, the daily trading turnover of all bonds over the period, excluding Bank of Thailand's shortterm bonds, averaged Bt16.5 billion, up 45 per cent from Bt11 billion in the same period last year.

For corporate bonds alone, trading volume increased 60 per cent year on year.

In the period, government bonds increased the most by 135 per cent - from Bt168.13 billion last year to Bt395.27 billion, while treasury bills jumped 95 per cent from Bt385 billion to Bt750.85 billion. However, commercial paper fell by 50.75 per cent from Bt813.97 billion to Bt400.82 billion.

In the period, the energy sector led by PTT Group issued the most bonds at 43 per cent of the total or Bt130.3 billion. The banking sector was next with 15 per cent or Bt46.6 billion, followed by the property sector with 9 per cent or Bt27.37 billion, construction materials with Bt8 per cent or Bt24 billion, financial institutions with 8 per cent or Bt23.65 billion, ICT with 8 per cent or Bt22.68 billion, and others with 9 per cent or Bt27.25 billion.

In the period, about half of the corporate bonds issued were for 510 years, followed by 38 per cent for 24 years, 9 per cent for more than 10 years and 4 per cent for less than 2 years.

Notably, toprated companies were active in the bond market. Those with a "AAA" rating represented 33 per cent of the bond issues, higher than 3 per cent over the same period last year, while companies with a "AA" rating issued around 19 per cent of corporate bonds, falling from 48 per cent last year.

"After credit spreads jumped in November and December last year when TSFC Securities defaulted on its B/Es (bills of exchange), because the market panicked, some investors didn't want to invest in corporate bonds rated lower than 'A'.

"Thus, corporate bonds rated 'BBB' saw their spreads soar since then. Now, they have begun to retreat slightly," Nattapol said.

For next year, corporate bond issuance is expected to decline about 20 per cent to some Bt300 billion, he said.

"Next year, corporate bonds will decline somewhat as this year is an abnormal year. Retail investors also won't be so interested in corporate bonds like they were this year as bank deposit rates will rise, while institutional investors are expected to return to longterm corporate bonds," he said.

The longend of the yield curve has already moved up, while shortterm rates are likely to rise soon. Retail investors should limit themselves to highrated corporate bonds and some prime state agency bonds, he added.

Pakorn Malakul Na Ayudhya, chairman of the Thai BMA, said the boom in corporate bond issuance shows that the bond market, one of the three pillars of the capital market, has served the economy well.

Amid the economic crisis, the other two pillars, banking and the equity market, have failed to support market players.

This situation is similar to the post-1997 financial crisis period, when banks didn't want to expand loans too much for fear of incurring toxic assets, while the stock market has been sluggish for years, he added.