Laos Set to Launch Fifth Bond Issue in Neighbouring Thailand
The Lao People’s Democratic Republic will launch an offering of baht-denominated bonds in the Thai market this week to raise up to 11 billion baht ($314 million) after finding a way to comply with restrictions on the repatriation of proceeds.
The frontier-market sovereign has been keen to raise funds prior to an expected US rate increase next month and before the approval window for its Thai issuance programme expires at the end of January.
This will be Laos’s fifth issue in the Thai market after it was given approval earlier in the year to sell baht bonds of up to 12 billion baht. However, the approval was conditional on using all the proceeds in Thailand.
Earlier this year, Thailand started clamping down on foreign issuers’ repatriation of funds raised in the local market. The Ministry of Finance said it would “restrain” any offers of baht bonds if the issuer failed to comply.
It was a major stumbling block for Laos, which had repatriated all proceeds from its previous four issues.
In order to accommodate the ruling, financial adviser Twin Pine Consulting and the issue’s arrangers came up with a structure under which Thai banks extend US dollar short-term loans to the Laotian government, which will be repaid from the bond proceeds.
The structure had been suggested by Public Debt Management Office’s director-general Suwit Rojanavanich in an interview with IFR, a Thomson Reuters publication, in August. The PDMO, part of the Ministry of Finance, manages approvals for foreign issuers in the baht bond market.
Market sources said the financing costs would remain competitive, despite the more convoluted route to obtain the funds.
Bank of Ayudhya, Kasikornbank and Siam Commercial Bank will be joint bookrunners, as well as joint lead managers with Krung Thai Bank and Thanachart Bank. The bookrunners will manage sales to institutional and high-net-worth investors, while KTB and Thanachart will only manage the latter.
Books are scheduled to open on Tuesday with settlement expected on November 18. Preliminary price guidance ranges were indicated early last week at 3.70%-3.95% for a three-year piece, 4.00%-4.25% for a five-year, 4.50%-4.70% for a seven-year, 4.80%-5.00% for a 10-year and 5.00%-5.20% for a 12-year.
Laos will join a batch of issuers preparing for bond sales to raise a combined 56.5 billion baht over the next few weeks to beat a widely expected US rate rise when the Federal Reserve meets on December 13-14.
Thai government bond yields have already gone up in anticipation. Yields on government bonds of the three and five years were at 1.77% and 1.95% last Friday – about 15 basis points (or hundredths of a percentage point) and 25 bps higher than a week earlier, respectively.
Despite the heavy pipeline, investor demand remains healthy. Coming after Laos, Berli Jucker plans a Bt20bn issue in early December.
“The company has a balance of 60-70 billion baht in bridging loans to refinance, and it wants to do that before December, in case the US Fed raises its policy rates,” said one DCM origination banker.
Another company rushing to the market is True Move H Universal Communication with a sizable goal to raise up to Bt23bn. It recently mandated Bangkok Bank, CIMB Thai, Krungthai Bank, Phatra Securities and Thanachart Bank as lead managers and underwriters.
Separately, CP All will be in the public market later this month to sell perpetual notes of up to 10 billion baht.
(Reporting by Kit Yin Boey; Editing by Vincent Baby)
Source: Reuters & Kitco