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

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

3. 3 Stimulus package: to help recover the economy SP1  Jan,13 2009 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. 4 Stimulus package: to help recover the economy SP2  After SP1, cabinet approved the Stimulus Package 2 over the next three fiscal years (2010-2012).  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. 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: www.tkk2555.com

6. 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. 7 SP2

8. 8

9. 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. 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 572,00074,380140,000 1053,00065,00070,000 1524,05026,65040,000 2023,95038,00040,000 305,0005,50020,000 1.2 Non-Benchmark Bond 710,000-15,000 128,00016,00015,000 1415,000-- 1.3 Saving Bond5–106,00080,000100,000 1.4 P/N> 530,95083,59851,171 2.1 S-T Government Bond 2-88,000- 3-49,999- 2.2 T-Bill-134,000- 3.1 Floating Rate Bond4-22,00030,000 3.2 Inflation Linked Bond?--10,000 Total 260,681683,127531,171 1. Financing for Fiscal deficit & Debt restructuring Source: www.pdmo.mof.go.th

11. 11 Bond Issue Term (Year) Fiscal Year 09 SP1 (Mil. THB) 1 Oct 2009 – 31 Dec 2009 SP2 (Mil. THB) 2.2 Bank Loan1-1030,000100,000 3.1 P/N5+-100,000 3.2 Saving Bond5+-70,000 Total 30,000270,000 2. Financing for Special Package 1 & 2 Source: www.pdmo.mof.go.th

12. 12 Issuance Value of Domestic Bond Bil.THB

13. 13 Thailand Outstanding Value

14. 14 Thailand Outstanding Value

15. 15 Thailand Trading Value Logarithmic scale

16. 16 Bond Turnover Ratio

17. 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. 18 Average AAA-Credit Spread Bps. Note: Data as of last date at each Quarter Source: ThaiBMA

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

20. 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. 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 2008. More supply ---> positive effect Increasing yield ---> negative effect

22. 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. 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. 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. 25 Thank you www.set.or.th