The Thai Bond Market Association (ThaiBMA) has warned issuers of short-term debentures not to rely on rolling over their maturing debts, because investors’ behaviour is shifting to long-term debentures with the same returns as short-term issues.
ThaiBMA president Tada Phutthitada said there were two reasons for the defaults on bills of exchange by Nation Multimedia Group, IFEC and KC Property: conflicts in their management teams and wrong expectations on cash-flow management. The defaulted debt of those companies represented less than 1 per cent of the total outstanding bond market, so it will not have much of an impact on the market, he said.
Issuers of short-term debentures can roll over their maturing debt, but the upward trend of interest rates could alter the demand of some investors this year from previous years because they have more choices and could see just as good returns from long-term as from short-term bonds.
Long-term debenture yield has surged since the US presidential election.
Issuers facing maturing debt should prepare their cash flows to deal with changing investor behaviour and to prevent unexpected defaults, Tada said.
This year, short-term maturing debt in the Thai bond market will amount to Bt260.34 billion.
He said that the ThaiBMA recommended that issuers of short-term bonds talk with commercial banks about debt refinancing to manage their cash flows.
Long-term debenture maturity in 2017 will be around Bt308.77 billion.
In 2016, new long-term-bond issuance hit a record of Bt812.98 billion, up by 37 per cent year on year, dominated by the banking, property and energy and utility sectors.
But large mergers and acquisitions in 2016 made the commerce sector a newcomer among long-term bond issuers. The commerce sector alone last year issued long-term bonds worth Bt122 billion, of which Bt80 billion to Bt90 billion was by Berli Jucker.
The bond market in 2016 expanded by 7.23 per cent to Bt10.85 trillion from Bt10.12 trillion in 2015.
The ThaiBMA believes long-term debenture issuance in 2017 will be around Bt600 billion, of which Bt320 billion will be refinancing of existing debt and around Bt120 billion will be issued by banks.
Tada said returns from short-term bond would stay in line with the Bank of Thailand’s policy interest rate of 1.50 per cent for a while. The association expects the policy rate to be increased once this year if the inflation rate rises significantly.