RULE EASED

IRPC takes second look at plans for refinancing

BOT announces capital-control exemption for offshore loans

IRPC - formerly Thai Petrochemical Industries - is revising its US$800-million (Bt27 billion) refinancing plan, with a possible increase in the portion of its dollar-denominated debt to 70 per cent from the 50 per cent planned earlier, in response to a relaxation by the central bank in its capital-reserve requirement.

IRPC president Piti Yimprasert told Dow Jones Newswires the higher percentage would conform to the proportion of the company's dollar income.

Piti said the company would decide later whether to refinance with long-term bonds or a loan and that it hoped to finalise the refinancing by June.

The $800 million in debt to be refinanced comes due in September. At present, half of its debt is dollar-denominated, with the balance in local currency. Local companies have complained the current requirements make funding costs too high.

Yesterday, the Bank of Thailand (BOT) announced that local companies borrowing offshore would be exempt from the central bank's 30-per-cent reserve requirements from next Thursday if fully hedged with currency swaps covering foreign-exchange risk.

BOT Governor Tarisa Watanagase yesterday insisted the relaxation would not compromise its objective of stabilising the baht.

The bank believes its withholding requirement will contribute at least 0.79 per cent to the gross domestic product (GDP) this year. The bank has downgraded its GDP forecast to 4-5 per cent, from 4.5-5.5 per cent previously.

Some have called the capital-control moves "draconian".

The statement came after the baht in offshore markets rose to about 34.09 to the US dollar on Thursday - a 3.29-per-cent jump from Wednesday's 35.21 to the greenback.

Dealers say they believe that the central bank on Wednesday stepped into the onshore market, where it cost Bt35.75 to purchase $1.

The baht opened yesterday at 35.86/35.88 to the dollar, then peaked at 35.80 before closing at 35.85/35.87 to the dollar.

The bank's statement said swapping offshore loans into baht - which entails a future obligation to swap back to the foreign currency originally borrowed in - would allow transactions to take place without disrupting the regular baht spot market.

Tarisa said the BOT maintained its objective of stabilising the baht, but the private sector would be able to cover currency risk, and volatility in the foreign-exchange market would be prevented.

"[With hedging], the private sector will know the costs [currency risks] well. The BOT has discussed this with the private sector. An official announcement will be made next Monday or Tuesday. It will take effect from February 1," said Tarisa.

Borrowers not wishing to hedge will have to comply with the reserve requirement, she said.

The BOT governor insisted the difference in baht value between the onshore and offshore markets was an expected result of central-bank measures to curb speculation.

Baht liquidity in the offshore market was limited, owing to the 30-per-cent withholding measure.

"Many mistakenly assume when the baht appreciates in offshore markets, it will strengthen onshore, too. But it doesn't. The BOT has already completely separated the markets.

"The difference in [baht value] in both markets won't be a concern. Finally, baht value in the offshore market will adjust itself," she explained.

Tarisa added that values in offshore markets had strengthened significantly over the past week, as baht liquidity offshore dried up as a result of bank measures preventing non-residents access to baht liquidity - an integral part of the anti-speculation policy.

She warned exporters to take care when quoting prices, because of the two-tier market system.

she said that quoting dollar values from the wrong market would result in losses.

Assistant Governor Suchada Kirakul yesterday said 30-per-cent reserve requirement would boost GDP 0.79 per cent this year.

Although the measure will reduce stock-market capitalisation and investors' paper wealth and slow economic growth, a weaker baht would boost exports.

She said higher export growth would offset falling domestic demand.

Anoma Srisukkasem

The Nation Thailand
Sunday January 28, 2007