10% growth seen as major firms need to maintain liquidity for future investments
The trend to lower interest rates could lead to issuance of more corporate bonds despite the political trouble, as corporates need to preserve liquidity at lower costs while wealthy investors continue to seek higher returns than they can get from bank deposits.
Siam Commercial Bank (SCB) executive vice president Sirote Vichayabhai said bond issuance this year was expected to grow by 10 per cent from Bt400 billion last year because market uncertainty and political unrest encouraged large companies to reserve their liquidity in preparation for investment.
In the first two months of the year, corporates issued bonds worth a total of Bt100 billion, he said.
If the central bank cuts the policy interest rate, the demand to issue bonds by local corporates will be increased, he said.
Foreign companies might not follow suit, however.
The bank’s research house, SCB Economic Intelligence Centre, expects that the Bank of Thailand will cut the policy rate by another 50 basis points in the first half of the year to 1.75 per cent from the current 2.25 per cent.
Maturities of new bond issues this year are expected to be three to seven years. Heavy industries led by oil and gas will issue debentures ranging from Bt10 billion to Bt15 billion, but the average issuance will be between Bt3 billion and Bt5 billion.
The largest issuance this year is expected to be by CP All, the operator of 7-Eleven convenience stores, which will issue bonds worth Bt40 billion this month.
SCB is an underwriter of CP All’s bonds and aims for market share of 17-18 per cent in corporate bond issuance this year.
Because of the political instability, however, corporates will focus on selling their bonds to institutional rather than retail investors.
Smith Banomyong, an executive vice president of SCB, said high-net-worth customers were diversifying from bank deposits to other investment choices such as bonds to enjoy higher returns.
Banks are playing down offering high interest rates for deposit products in line with slower loan growth, with several giving importance to current and savings deposit accounts (CASA) instead to lower the cost of funds.
To the same, SCB has stopped offering interest rate to fixed-deposits to depositor in the tier of Bt500 million to Bt1 billion to manage cost of fund.
Smith said SCB was considering lower interest rates for customers with deposits lower than Bt500 million and don’t have other products at the bank.
He added that it was possible that savings-deposit interest rates would be cut if the policy rate is lowered. However, this will depend on the market situation and the bank’s executive board’s consideration.
SCB will focus on maintaining CASA deposits, which can help strengthen the cross-selling customer base and fee income.