FINANCING BUDGET DEFICIT : Unexpected rush for bonds

FINANCING BUDGET DEFICIT : Unexpected rush for bonds.

The government's first tranche of bonds to finance its budget deficit has surprisingly been oversubscribed by five times amid earlier speculation that the government would face low demand for the bonds and a higher cost of funds, because of the impact from the central bank's draconian anti-speculation measures.

The bonds were also sold with lower-than-expected coupon rates.

Public Debt Management Office director Pongpanu Svetarundra yesterday said the Bt6.5-billion first tranche of bonds to finance the government's 2007 budget deficit were totally sold out on Wednesday, with five times oversubscription.

The government plans to borrow Bt146 billion to finance the budget deficit during the current fiscal year, which began last October. It will be the first budget deficit in four years. The first tranche of bonds, raising Bt6.5 billion, was the first step in that borrowing programme.

Earlier, there was speculation that there would be low demand for the bonds, because the bond market has been volatile and premiums have been rising, due mainly to the 30-per-cent reserve requirement of the Bank of Thailand (BOT).

Many business operators have postponed the issuing of bonds, because they cannot be certain about the bond yield and are worried about further measures from the central bank.

However, despite the current uncertainty, investors have perceived the government bonds as a savings tool that is both safe and secure, said Pongpanu. In addition, foreign investors are still channelling their money into Thailand by parking it in the debt market.

He said the BOT also participated in Wednesday's bidding for the government bonds.

"This is good news amid a lot of uncertainty," he said. "Many institutional investors took part in the bond auction. The coupon rates were also lower than our expectation, allowing us to pay less."

The government sold Bt5 billion worth of bonds with a seven-year maturity carrying a coupon rate of 4.95 per cent - lower than the expected rate of 5.25 per cent. It also sold Bt1.5 billion worth of 12-year bonds carrying a 5.27-per-cent coupon rate - once again, lower than the expected rate of 5.625 per cent.

Finance Minister MR Pridiya-thorn Devakula earlier said the government would not only issue long-term bonds, but also savings bonds to be sold to individual investors.

"The office is studying ways of issuing savings bonds that will attract individual savers," Pongpanu said. "But considering the outcome of the bond auction this time, the market sentiment is still allowing fund-raising from institutional investors."

Of the government's planned borrowing of Bt146 billion, the Public Debt Management Office expects to issue long-term bonds for Bt100 million, while the rest will be raised from savings bonds and borrowing directly from the money market. The long-term bonds will be issued during this year's first quarter, with a maturity of from seven to 17 years.

The Nation
Friday January 12, 2007