1 Strategies for Prospering Thai Primary & Secondary Government Bond Market Dr. Santi Kiranand Group Head Market Development The Stock Exchange of Thailand November 20, 2009

2 Analysis  Supply side: financing needed by government  Demand side: the readiness of the market and the need in government securities.

3 Stimulus package: to help recover the economy SP1  Jan, Cabinet agreed to a THB1.683 trillion stimulus package to counter the economic slowdown.  The government started spending a THB116.7 billion in March 2009, called “Stimulus Package1 (SP1)”.  IMF estimated the world economic will be contracted by 0.5% - 1.0% and late recovered.  A cabinet statement said that the stimulus package is to lure back tourists and develop holiday and destinations. The exchange rate: US$ 1 ~ THB 33.3 ~ NT$ 32.35

4 Stimulus package: to help recover the economy SP2  After SP1, cabinet approved the Stimulus Package 2 over the next three fiscal years ( ).  The plan comprised a mix of cash handouts for low earners, tax cuts, expanded free education and subsidies for transport and utilities.  SP2 is amount THB1.56 trillion.  The government expected this 2 nd package to help boost GDP by 5% and create 1.6 million jobs over three years.

5 SP2 Water Resource /Agriculture THB0.23 trn. Public Service THB1.14 trn. Tourism THB6.64 bn. Innovative Economy THB20.13 bn. Education THB60.15 bn. Public Health THB 9.29 bn. Community THB 0.1 trn. THB1.56 trillion Source:

6 SP2  Of THB1.566 trillion, THB676 billion (43%) is allocated for logistic projects such as mass transit, roads, aviation and railways. Irrigation investment takes nearly 15% of the budget with nearly 35,000 projects. It claims to create 350,000 jobs over three years.  Energy investment gets THB213 billion. It is worth noting that the budget allocated to the Southern area is relatively high at Bt100bn. Southern GDP accounts for 9-10% of the country.  Of the THB100 billion, THB65 billion will go to five provinces in the deep South.

7 SP2

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9 Source of Funds  Source of funds of SP2 will come from the budget (39.2%), domestic borrowing (17%), foreign borrowing (27.1%) and other income (16.6%).  The package will result in an increase in government borrowing of THB 692 billion or about 7.6% of 2008 GDP. This might cause public debt to exceed 50% of GDP.

10 Bond Issue Term (Year) Fiscal Year 08 (Mil. THB) Fiscal Year 09 (Mil. THB) Expected Fiscal Year 10 (Mil. THB) 1.1 Benchmark Bond 572,00074,380140, ,00065,00070, ,05026,65040, ,95038,00040, ,0005,50020, Non-Benchmark Bond 710,000-15, ,00016,00015, , Saving Bond5–106,00080,000100, P/N> 530,95083,59851, S-T Government Bond 2-88, , T-Bill-134, Floating Rate Bond4-22,00030, Inflation Linked Bond?--10,000 Total 260,681683,127531, Financing for Fiscal deficit & Debt restructuring Source:

11 Bond Issue Term (Year) Fiscal Year 09 SP1 (Mil. THB) 1 Oct 2009 – 31 Dec 2009 SP2 (Mil. THB) 2.2 Bank Loan1-1030,000100, P/N5+-100, Saving Bond5+-70,000 Total 30,000270, Financing for Special Package 1 & 2 Source:

12 Issuance Value of Domestic Bond Bil.THB

13 Thailand Outstanding Value

14 Thailand Outstanding Value

15 Thailand Trading Value Logarithmic scale

16 Bond Turnover Ratio

17 Yield Curve Movement From 01/01/2009 to 18/11/2009 Source: ThaiBMA SP1 Borrowing Plan SP1 Schedule Announcement SP2 Schedule Announcement SP2 Borrowing Plan

18 Average AAA-Credit Spread Bps. Note: Data as of last date at each Quarter Source: ThaiBMA

19 Term Spread SP1 Borrowing Plan SP1 Schedule Announcement SP2 Schedule Announcement SP2 Borrowing Plan Source: ThaiBMA

20 What has happened?  Change in the yield curve shape (from hump in shorter than 1-year to normal shape)  Steepened yield curve has been observed since the first announcement of the SP1. After that, the curve was upward parallel shifted.

21 What will be in the future?  It is expected to observe the increase in policy rate by Q2/2010.  The liquidity of secondary market might not speed up rapidly like it was in 2007 and More supply ---> positive effect Increasing yield ---> negative effect

22 What will be in the future?  Benchmark, yield curve will be better estimated. Private sector will benefit from the clearer benchmarks.  There will be more risk-management instrument in the market. TFEX is going to launch interest rate futures by 2010.

23 What should be prepared?  The supporting functions in bond market must be improved, i.e. the CRA, credit enhancement mechanism.  Tactfully add more players in the bond market. Government securities might be more used as vehicle in liquidity management for private sector.

24 What should be prepared?  If less interest rate volatility is observed, it is expected to see more issuance of long term government securities.  The market will be deeper. ILB, FRB will be issued more.  Retail investor may be able to access bond market easier.

25 Thank you