Tris Rating estimates Thai corporate bonds outstanding will outpace corporate loans in the next few years as large companies capitalise on the lower financial costs of bond issuance.
The upsurge in Thailand's corporate bonds is set to continue and is likely to overtake corporate lending in the coming years, said Tris president Sakda Pongcharoenyong.
Corporate bonds outstanding amount to 3 trillion baht, while the banking industry's wholesale loans stand at 3.5 trillion. The local bond market's growth averaged 15% per year over a decade, while corporate loans outstanding have been steady over the past five years.
"The sustained growth combined with continued demand from potential new issuers suggests the bond market may eventually surpass corporate lending in the next few years," he said in a seminar titled "Credit Spotlight on Thailand: The Link to Continental Southeast Asia," co-hosted by Tris and S&P Global Ratings yesterday.
Dozens of merger and acquisition (M&A) deals for large Thai corporations, especially conglomerate firms, boosts demand for fresh funds through the debt market as the costs are cheaper than bank loans. Risk diversification in funding structure and financial balance also encourages large firms to issue bonds.
On the lending front, Bank of Thailand requirements, including the single lending limit, which prohibits commercial banks from lending more than 25% of their Tier-1 capital to a single group of companies, the capital adequacy ratio, and loan-loss provisions constrain banks from aggressively extending loans to corporates.
Tris forecasts corporate bonds will continue to grow this year because of local large companies' plans for bond issuance, particularly the food and beverage and property sectors to finance their M&A plans, he said.
Tris estimates new long-dated corporate bond issuance will rise by 3-5% this year from 800.7 billion baht last year, 772 billion in 2016 and 372 billion in 2015.
From 2015-17, the banking sector was the biggest bond issuer with a combined 301 billion baht in loans, followed by retail sector at 246 billion, property at 236 billion, construction material at 209 billion and telecommunications at 186 billion.
The Thai Bond Market Association recently said long-term corporate bond issuance this year was likely to exceed its forecast of 690-720 billion baht as companies rush to issue bonds in the first half to avoid stricter regulations imposed by the Securities and Exchange Commission (SEC) following a flurry of unrated bill of exchange (B/E) defaults. The key amendment for B/E issuance the SEC plans to enforce by April would limit private placement to a maximum of 10 high-net-worthand institutional investors.
