Project Funding For Infrastructure Development in Bangkok
Launching of Thailand’s First Inflation Linked Bond 20th – 25th June 2011 Thailand first’s ILB London – UK, SG, HK
1
Disclaimer Public Debt Management Office, Ministry of Finance - Thailand
The information contained in this presentation is for informational purposes only and does not constitute an offer or invitation to sell or the solicitation of an offer or invitation to purchase or subscribe for THB inflation linked bonds (the “ Bonds”) issued by the Ministry of Finance of the Kingdom of Thailand in the United States, Thailand or any other jurisdiction nor should it or any part of it form the basis of, or be relied upon in any connection with, any contract or commitment whatsoever. This presentation is confidential and is intended only for the exclusive use of the recipients thereof and may not be reproduced (in whole or in part), retransmitted, summarized or distributed by them to any other persons. None of The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch Krung Thai Bank Public Company Limited, The Siam Commercial Bank Public Company Limited and Kasikornbank Public Company Limited (together, the “the Joint Lead Managers”) or the Issuer nor any of their holding companies, subsidiaries, affiliates, associated undertakings or controlling persons, nor any of their respective directors, officers, partners, employees, agents, representatives, advisers or legal advisers makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document or otherwise made available nor as to the reasonableness of any assumption contained herein or therein, and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. Nothing contained herein or therein is, or shall be relied upon as, a promise or representation, whether as to the past or the future and no reliance, in whole or in part, should be placed on, the fairness, accuracy, completeness or correctness of the information contained herein. None of the Joint Lead Managers, the Issuer or their subsidiaries or affiliates has independently verified, approved or endorsed the material herein, or undertakes to update or revise any information subsequent to the date hereof, whether as a result of new information, future events or otherwise. This presentation may contain forward-looking statements that may be identified by their use of words like “plans”, “expects”, “will”, “anticipates”, “believes”, “intends”, “depends”, “projects”, “estimates” or other words of similar meaning and that involve risks and uncertainties. Forward-looking statements are based on certain assumptions and expectations of future events. None of the Joint Lead Managers or the Issuer can guarantee that these assumptions and expectations are accurate or will be realized. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements as a result of a number of risks, uncertainties and assumptions. You are cautioned not to place undue reliance on these forward looking statements. None of the Joint Lead Managers or the Issuer assumes any responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events, or otherwise. These materials may not be taken or transmitted or distributed, directly or indirectly, to a U.S. person (as defined in Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”)) or to any officer, employee or affiliate of a U.S. person located in the United States or any of its territories. It may be unlawful to distribute these materials in certain jurisdictions. 2
Thailand’s stimulus package in 2009 led to a strong rebound in economic growth Public Debt Management Office, Ministry of Finance - Thailand
15%
% change (Y-O-Y)
Real GDP (year on year percentage change)
China India
10%
7.8%
Thailand
5%
4.0% 0%
-2.3% -5% 2008 China
Hong Kong SAR
2009 India
Indonesia
2010 Korea
Malaysia
2011F Philippines
Vietnam
Thailand
Source : IMF, World Economic Outlook Database, April 2011
3
Biggest Stimulus Package in the Region
TKK* 2012 : US Dollar 43 Billion
(TKK* 2012 plan)
(By Sector) Public Debt Management Office, Ministry of Finance - Thailand
Economy
Stimulus Package as share of 2009 GDP (%)
China, People's Rep. of
1.2
Hong Kong
1.4
India
1.6
Indonesia
1.3
Korea, Rep. of
2.5
Malaysia
2.6
Philippines
4.1
Singapore
5.9
Taipei, China
2.1
Thailand
6.4
Units: Billion US Dollars
Others 5.0 12%
Logistic 12.3 28%
Public Health 3.6 8% Community Investment 4.7 11%
Education 4.7 11%
Energy 5.2 12%
Agriculture 7.5 18%
Source : Oxford Economics, 2009 “Asian Emerging Fiscal Policy. A limit Boost, but China could yet do more”, Emerging Market Weekly, 16 March * Thai Khem Khaeng (TKK) scheme is a stimulus package initiated to support economic recovery and to help strengthen the country’s medium-term economic competitiveness.
4 Source : Public Debt Management Office, Ministry of Finance
4
Effective Fiscal and Debt Management Lead to LOWER Public Debt to GDP in the Long Run Public Debt Management Office, Ministry of Finance - Thailand
70
(%) Pre-TKK Stimulus Package 61.7
60.3 46.9 46.0
41.9
35
42.7
37.3
Post-TKK Stimulus Package
14.6
2018F
2017F
2016F
2015F
2014F
2013F
2012F
2011F
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0 1996
Public Debt / GDP (%)
52.5
5
Macroeconomics Indicators Public Debt Management Office, Ministry of Finance - Thailand
GDP: back on growth trend Positive signs in Q1/2011 World economic recovery + expanding domestic demand resulted in - higher export - expansion in tourism - increasing private investment - higher farm income - lower unemployment rate
Source : NESDB May 23, 2011
Economic management for 2011 (1) Maintaining stability and increasing level of income (2) Monitoring prices of commodities (3) Enhancing competitiveness of Thai economy (4) Accelerating a regional cooperation in trade and transportation
6
Macroeconomics Indicators Public Debt Management Office, Ministry of Finance - Thailand
Low Unemployment Rate
Strong External Balance and Export y-o-y
USD mil 4,000 3,500 3,000 2,500 2,000 1,500
60% %
50%
12
40%
10
30% 8
20%
1,000 500 0 -500 -1,000 -1,500 -2,000
10%
6
0%
4
-10%
2
-20%
EU
UK
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Apr-07
Aug-07
Dec-06
Apr-06
Aug-06
Dec-05
Apr-05
Aug-05
Thailand
Source: Bloomberg, April 2011
US
Source: Bloomberg, June 2011
Historical Policy Rates
YoY Inflation Historical Trend %
%
7
10
6
8
5
6
4
4
3
2
2
0
1
-2
2000
0 2000
Dec-04
2011
Apr-04
2010
Export growth (right axis)
Aug-04
2009
Dec-03
2008
Apr-03
2007
Aug-03
2006
Dec-02
2005
Apr-02
2004
Aug-02
2003
Trade Balance (left axis)
Dec-01
2002
Apr-01
2001
Aug-01
0
-30%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-4
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 -6
Thailand
Source: Bloomberg, June 2011
EU
UK
US
Thailand
Source: Bloomberg, June 2011
EU
UK
US
7
Consensus: Thailand’s fundamentals remain sound and improving Public Debt Management Office, Ministry of Finance - Thailand
S&P’s Thailand Analysis**
Moody’s Thailand Analysis*
Fitch’s Thailand Analysis***
Thailand’s Baa1 LT Local currency rating reflects medium economic and institutional strength
LT Local currency affirmed at ‘A-’ with stable rating outlook
Revised LT Local currency IDR up from negative outlook to stable and affirmed rating at ‘A-’
• International reserves build up • Steady repayment of external debt • External debt reduction • Export competitiveness • Track record of fiscal restraint • Stronger external indicators than the median values of Baa peers and many A-rated countries
• Thailand is a significant net external creditor • Prudent fiscal management • Foreign-exchange reserves are likely to exceed USD 170 billion • Government indebtedness is modest (less than 23% of GDP at end of 2010) • Interest burden is kept at only 5.3% of government revenue
• External finances ‘exceptionally strong’ compared to BBB Median • Capability for external debt repayment and servicing exceeds BBB group • Quicker than expected fiscal stablisation from stimulus programmes
Remarks:
* Moody’s Thailand Credit Opinion, March 2011 ** S&P’s Thailand Report, January 2011 *** Fitch’s Thailand Report, May 2011
8
Thai Bond Market
9
Thailand’s Bond Market has Grown Strongly for More Than a Decade Public Debt Management Office, Ministry of Finance - Thailand
140%
128%
120%
105% 100%
86%
80%
78%
72% 60%
63%
52% 40%
39% 20%
7%
Bank Loan / GDP
Equity Market / GDP
2011 (Q1)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1996
1995
1994
1993
1992
1997
12%
0%
Bond Market / GDP
10
The Thai Bond Market has Developed Rapidly and Efficiently Public Debt Management Office, Ministry of Finance - Thailand
Billion US Dollars
350
100%
Next Step 2011: (Market Deepening Oriented)
Post Crisis – 2000:
2007 – 2010 :
300
Volume Oriented
Development Oriented
250
Bond Market Capitalisation tripled Government Bonds Outstanding grew by 50 times Government Bond Market Share jumped from 3% in 1997 to 44% in 2000
Regular Benchmark Issuance New Product Development Pro-active Bond Market Management (BoT and PDs)
40%
% of GDP
- Illiquid Bond Market - Absence of Benchmark Bond - Dominated by SoE’s Bonds - Retail Market
20%
10%
50
65% 57%
Pre-Crisis
100
80%
60%
200
150
Upgrade PD system Regional Linkage ILB and 50-yr Bond
2012F
2011 (Q1)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0% 1995
0
11 11
Deep and liquid domestic bond market allows government to meet funding requirements (tripled as a result of stimulus measures) Public Debt Management Office, Ministry of Finance - Thailand
Billion US Dollars
32
Consistent benchmark issuance Benchmark yield curve Saving bonds Expand investor base (Retail) Low cost bank loan TKK Investment
Strategy FY2011-12 ILB
Rising inflation rate trend Long-term P/N Demand from insurance LB 50-yr bond Lengthen portfolio
24
Bank Loan 1.0
T-Bill 4.5
16
P/N 1.7
Tripled
TKK 5.0
Bank Loan 7.9
P/N 3.5
SB 2.7
SB 2.7
New Instruments 2.5 Bank Loan 2.0
P/N 1.8
FIDF 11.3
SB 0.1
P/N 1.0
8
-
P/N 1.0
SB 0.6
SB 0.6
LB 6.4
LB 7.4
LB 12.8
LB 14.7 T-Bill -4.2
LB 13.7
Budget Deficit 11.7
T-Bill -2.5 Refinance Bank Loan
-2.5 Refinance Bank Loan
-2.7
-8 Fiscal Year
2007
2008
Annual Fund raising USD 8.0 bn Note:
USD 9.0 bn
2009 USD 22.7 bn
2010 USD 24.6 bn
2011 USD 17.6 bn
2012
USD 28.5 bn
SB – Saving bond for retail investors LB – Loan bond (Thai government bond) ILB – Inflation-linked bond P/N – Promissory note TKK – Thai Khem Khaeng scheme FIDF – Financial Institutions Development Fund
12
2007 – 2011
Innovation of Gov’t Debt Securities Public Debt Management Office, Ministry of Finance - Thailand
2007-10 30-yr Loan Bond
• Lengthen average-time-to-maturity − New Issuing Debt 6 yrs to 10 yrs − Government Debt Portfolio 5.7 yrs to 6.3 yrs
Floating Rate Bond
• Increase floating debt ratio (5% to 13%) • Promote BIBOR
Step-up Saving Bond
• Increase investor base – Retail investors • Low interest burden at the initial periods of bond
Fixed Promissory Note
• Increase investor base – Insurance / Long-term investors • Non-Benchmark maturity
2011 50-yr Loan Bond
• Combat low interest rate + Lengthen average time-to-maturity • 4th country in the world (1st : UK 2nd : France 3rd : China)
Inflation Linked Bond (ILB)
• • • • •
Saving Bond - ATM
Strong anti-inflationary signal Deepen the Development of the Bond market 1st country in Emerging Asian Economies Enhance liquidity of saving bond To be launched : Sep 2011
13
Keep Our Word to get Investor Confidence for the Plan
Firm Committed Supply of Benchmark Bond Regardless of Budget uncertainty
FY2009 400,000
Higher government funding due to the Stimulus Package I and II ~ +270,000
300,000
MB
200,000
Plan +3% 209,530
281,000
+151% 163,000
203,000
Total Funding increase from: 424,691 MB to 696,252 MB (+64%)
Actual
+91%
+160% +33% 80,000
100,000 65,000
109,722
147,000
60,000
42,191
-
Benchmark Bond
Non Benchmark Bond
Saving Bond
T-Bill
Others
(Outstanding)
FY2010 400,000
360,000
Plan
+6%
Lower Borrowing from Economic Recovery ~ 105,000 MB
300,000
340,000
-45% 281,000
306,171
261,171
-52%
200,000
Total Funding decrease from: 801,171 MB to 696,171 MB (-13%)
Actual +17%
154,000
+150 %
100,000
75,000
170,000 82,000
30,000 -
Benchmark Bond
Non Benchmark Bond
Saving Bond
T-Bill (Outstanding)
Others
13
Equilibrium of Thailand Bond Market
• Issuers • Credit Rating • Investors Public Debt Management Office, Ministry of Finance - Thailand
Issuers
• 82 percent of Thailand’s debt securities were issued by Government, Central bank and State-owned Enterprises
Credit Rating
• 98 percent of Thailand’s debt securities are classified as Investment Grade by local rating agencies
Investors
• Thailand’s government debt securities are held by a wide group of investor types
Thailand Bond Market (Classified by Issuers)
Thailand Bond Market (Classified by Credit Rating*) Other
BBB
2% 2%
A
7%
AA
Private Sector
Government
7%
39% Central Bank
Source: Thai Bond Market Association
TSD (Subbook of Broker/Custodian)
4%
SOEs
36%
3%
AAA
18%
Government Debt Securities (Classified by Types of Investors)
SOEs
29%
Government
7
39%
%
%
* This is local rating agencies – TRIS / Fitch (Thailand)
25%
Non-resident
1% Household and Non-profit
Central Bank
36
Insurance and Other Corporation
Government and Central bank
Depository Corporation
26%
17% 2%
Source: Bank of Thailand
15
Bond Market Liquidity in Secondary Market
Selected ASEAN+3 Government Bond Turnover Ratio Public Debt Management Office, Ministry of Finance - Thailand
Japan
USD 10,425 bn
China
USD 2,369 bn
Korea
USD 524 bn
Thailand
USD 180 bn
Malaysia
USD 155 bn
Singapore
USD 105 bn
0.96 1.16
0.61 0.81
USD 63 bn
0
S & P*
Aa2
AA-
Aa3
AA-
A1
A
49.6
Baa1 BBB+
0.87
0.27 USD 103 bn
Indonesia Philippines
1.15
Moody’s*
1.3 1
* Source: Sovereign foreign currency ratings, Bloomberg (as of 16 Jun 2011) ** Trading volumes in secondary market and bond turnover ratios are from Asian Bonds Online
A3
A-
Aaa
AAA
Ba1
BB+
2011
Ba2
BB
2010
2 16 16
1. Trading Volume 3. Demand Concentration
Key Success Indicators
2. Turnover Ratio 4. Auction Price
Public Debt Management Office, Ministry of Finance - Thailand
5 yr Benchmark Bond : Highest Secondary Trading Volume (accounted for ¼ of total trading volume)
27%
5
FY08
FY09
3.9
27%
20%
3.1
2.4
1.7
7% FY07
5 yr Benchmark Bond : Higher Turnover Ratio
FY10
Top 10 Gov’t Bond Series – Accounted for 84% of all Gov’t Bond trading in Secondary Trading Volume
FY07
FY08
FY09
FY10
Well developed Benchmark Bond pays off : Even with greater size of issuance, the cost of funding is still at market rate
-0.6 bps +1.4 bps
84% 76%
78%
80%
70% FY07
FY08
FY09
FY10
FY11 H1
+1.2 bps USD 7.5 bn FY08
USD 12.8 bn
FY09
USD 14.5 bn
FY10
17
ILB Features
18
Structure of Thai ILB Public Debt Management Office, Ministry of Finance - Thailand
Indicative Terms & Conditions Format
Capital Indexed Bond (similar to Canadian model) with floor
Currency
Thai Baht
Tenor
10 years
Programme Size
Up to THB 40 billion (USD 1.3 billion equiv.)
Interest Payment
Every 6 months
Index
Headline CPI
Indexation Lag
3 months
Index Ratio
CPI t / CPI 0 (TBMA's calculation)
Expected Real Yield
[ ]
Repayment Method
Bullet
Expected Timing
Following Thai election in early July 2011
19
Calculation Public Debt Management Office, Ministry of Finance - Thailand
Interest Paid (semi-annually) Inflation-adjusted component on Principal (at Maturity)
where
=
Actual
× C × Index Ratio × Principal
365
= (Index Ratio − 1) xPrincipal
Index ratio =
CPIRef CPIIssue
D −1 CPI Issue , CPI Ref = CPI M -3 + × (CPI M -2 − CPI M -3 ) TD
C CPIRef CPIIssue CPIM-2 CPIM-3 D TD
= = = = = = =
Date Interpolation Factor
Coupon Rate (which is equal to Real Rate for ILB) Each Referred Headline CPI has a Referred Headline CPI @ Interest Payment Date 3-month lag time (International ILB Referred Headline CPI @ Bond Issuance Date Standard Compliance Purpose) Headline CPI @ 2 months prior to the relevant Interest Payment Date Headline CPI @ 3 months prior to the relevant Interest Payment Date Date of Interest Payment Number of Days in the Interest Payment Month
Example Thailand*s ILB issued on January 1, 2011 (CPI @ October 2010 = 100 and CPI @ April 2011 = 103) Calculate Index Ratio on the first interest payment date, July 1, 2011: when CPIIssue = 100 (calculated from CPI @ Octorber 2010) CPIRef on July 1, 2011 = 103 (calculated from CPI @ April 2011) from the formula Index Ratio = CPIRef CPIIssue
Hence, Index Ratio on July 1, 2011 = 1.03
20 20
Comparison of Global ILB Bond Structures Public Debt Management Office, Ministry of Finance - Thailand
• Thailand’s Inaugural ILB issued by MOF will conform with international ILB standards and conventions. This allows investors to compare valuations more easily (UK recently shifted the majority of supply into 3mth lag index-linked gilts). • Inflation floors offer advantage for investors in times of deflation. Thai ILB approach to inflation floor conforms with international standards.
Thailand MOF ILB
CANi
UK InflationLinked Gilts
U.S. TIPS)
OATi
OAT€i
Reference Index
Thai Headline CPI (monthly)
Canada CPI (monthly)
RPI (monthly)
CPI-U (monthly)
INSEE ex-tobacco (monthly)
EMU HICP ex-tobacco (monthly)
Coupon Frequency and Fixing Method
Semi-annual (postdetermined)
Semi-annual (postdetermined)
Semi-annual (postdetermined)
Semi-annual (postdetermined)
Annual (Postdetermined)
Annual (Postdetermined)
Principal Indexation
Daily with a 3 month lag
Daily with a 3 month lag
RPI with a 3 month lag*
Daily with a 3 month lag
Daily with a 3 month lag
Daily with a 3 month lag
Principal Repayment
Minimum at par
Minimum at par
No minimum
Minimum at par
Minimum at par
Minimum at par
* Since 2008
21
Reference Index
Reflects the changes in local consumer purchasing patterns Public Debt Management Office, Ministry of Finance - Thailand
Thailand
USA
European Union
US CPI Urban
EU Harmonised index of Consumer Price (ex-tobacco)
Headline CPI Food 15% Education 5%
Other 33%
Food 33%
Medical 6% Energy 10%
Transportati on 23%
Housing 23%
Apparel 4%
Food 20% Services 41%
Manaufacur ing 31%
Housing 42%
Services 36%
Energy 9%
UK
Mexico
Retail Price Index
Nacional de Precious al Consumidor
Other 10%
Food 15% Other 17%
Food 22%
Apparel 6% Housing 12%
Remarks : Monthly Announcement by Ministry of Commerce (at the
1st
working day of the following month)
Bloomberg ticker : THCPI Index <GO>
Services 51%
Apparel 6%
Services 20% Housing 35%
22
Next Step: Enhance ILB liquidity Public Debt Management Office, Ministry of Finance - Thailand
Develop regular Annual Auction plan (auction every quarter or 6 times a year) Top-up the existing tenor to enhance more liquidity Issue other Benchmark tenors (3-, 5- and 7-year ILBs) Develop Benchmark Real Rate Yield Curve Maintain portion of successful bid in ILB primary market Maintain portion of ILB trading in secondary market Provide firm bid/ask spreads in secondary market
Encourage SOEs and private sector to issue ILBs Cooperate with mutual funds to issue the ILB-related funds Allow dealers to develop inflation-related products (e.g. Inflation Derivative) 23