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Global bond issue may be put off


THE interest spread of Asian bonds, including Kingdom of Thailand bonds, has jumped significantly since the outbreak of the social and political upheavals in Indonesia, possibly causing a postponement of Thailand's launch of a global bond issue until the international market environment is more favourable, international investment bankers say.

Already the interest spread of Indonesian and Kingdom of Thailand bonds traded in the New York market has risen sharply over fears of further adverse impacts from the riots that have broken out in Jakarta and other major cities in Indonesia and from the fragile political situation surrounding Suharto's presidency.

Trading of Kingdom of Thailand bonds has been affected by turmoil in Indonesia, as evidenced by a big jump in the spread of its bonds, due to mature in 2002, from 315 basis points above US treasuries on May 11 to 330 points on May 13, to 340 points on May 14, 345 points on May 15 and 365 points on May 18, according to a foreign brokerage source.

One basis point is one one-hundredth, and higher spread represents premium risks in holding the bonds. The Kingdom of Thailand bond has been downgraded below investment grade, mustering a credit rating of Ba1/BBB, or junk-bond status.

The spread of Thailand's bonds due in 2007 also rose from 315 basis points above US treasuries on May 11 to 320 on May 13 and to 330 on May 14, then fell to 320 on May 15 and rose again to 335 on May 18.

''We've heard that the Thai government may consider postponing the launch of the bond issue because of the fallout from the turmoil in Indonesia,'' said an international investment banker. ''The spread is rising, and it might not be worthwhile to do any offering now.''

Failure to launch the global bond, which will come in several issues totalling US$5 billion, will mark another setback for the Thai government in its attempt to resolve the liquidity crunch in the system, which is badly in need of fresh foreign capital. Parliament is due to vote Wednesday on four pieces of legislation, one of which includes a bill to allow the Finance Ministry to create external debts by issuing international bonds up to $5 billion.

Finance Minister Tarrin Nimmanahaeminda had aimed to mount an international road show to kick off the global bond issue in June, testing the water with $1 billion in the first tranche. Selection of the global bond managers is likely to take place this week, and there have been indications that the Finance Ministry will give the mandate to a European house and an American house in the first tranche.

S Ghon Rhee, resident scholar at the Asian Development Bank (ADB)'s Economic and Development Resources Centre, admitted that it was inevitable that Thailand's global-bond scheme would be affected by the uncertainties in Indonesia. ''The global-bond premium will certainly be higher,'' he said.

Rajat M Nag, ADB programme manager, said that the Indonesian crisis hit all countries in the region but he believed that investors discriminated between Thailand and Indonesia since the former's implementation of a tangible financial- and economic-reform programme.

The ADB forecast that Thailand's economy would contract by at least three per cent but would recover next year with a growth of one per cent.

Indonesia is in worse shape than Thailand, with its super-junk bond, due to mature in 2006, being traded at 575 basis points above US treasuries on May 11, 700 on May 13, 800 on May 14, 734 on May 15 and 840 on May 18.

The Korean bond carries a higher risk premium than Thailand due to its poorer international rating. Its bond, due to mature in 2003, was traded at 365 basis points above US treasuries on May 11, 400 on May 13, 395 on May 14, 390 on May 15 and 423 on May 18.

The other bond tranche, due for maturity in 2008, was traded at 400 basis points above US treasuries on May 11, 440 on May 13, 420 on May 14, 413 on May 15 and 443 on May 18.




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