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Cash crunch fears rise in Thai corporate bond market on pandemic

Seven companies extend debt maturities up to 24 months to preserve liquidity

Sales of bonds issued by Thailand's top companies, including Siam Cement and a chemical unit of PTT, have slowed since the outbreak. (Source photos by Reuters and Akira Kodaka)

BANGKOK -- The novel coronavirus pandemic has created uncertainty in the Thai corporate bond market. Sales of bonds issued by the country's top companies have been slower than before the outbreak, raising fears of a liquidity crunch.

This has prompted a challenge for Thai corporates whose 600-billion-baht ($19 billion) in bonds are due to mature this year, according to the Thai Bond Market Association. The market uncertainty is bad news, especially for companies that want to keep cash on hand in the face of declining sales caused by the pandemic's effect on the economy.

In the first half of this year, around 122 billion baht of corporate bonds have been issued so far by major Thai companies, including Siam Cement, True Corp., Berli Jucker, Charoen Pokphand Foods and PTT Global Chemical, the association data shows. That compares with 20.5 billion baht in the same period last year.

However, the bonds did not receive a warm welcome from investors although their coupon rates were well above Thai commercial banks' savings rate of around 0.3%, which should have encouraged them to switch to bonds.

That is a rare phenomenon in the Thai bond market, which has been experiencing average growth of 14% a year, with the total bond market value rising from 1.3 trillion baht in 2010 to an expected 3.96 trillion baht in 2020, according to the country's Securities and Exchange Commission.

Seven listed companies including property developer Apex Development, leather product manufacturer Chai Watana Tannery Group and cargo ship operator Precious Shipping have recently extended their bond maturity dates by 6 to 24 months, according to the local English-language newspaper Bangkok Post.

Chai Watana Tannery said in a statement that the company had met with bondholders and they approved the plan to extend the company's bond maturity for one year in order to allow it to have better liquidity while business is hit by the COVID-19 pandemic.

"In order to manage risks and adjust the company's business plan to match the changing situation properly, we need to extend the maturity of the debenture," the company said in a statement.

An analyst at KTB Securities said that the pandemic has placed every business into high risk, thus making it hard for all of them to survive. It has also raised concern among investors given that risky corporate bonds might default, the analyst added.

Industry conglomerate Siam Cement in April issued a 25-billion-baht bond, which was rated at A+ and a 2.8% coupon rate. But it took up to a week for the company to sell them all. That was an abnormal phenomenon for investment-grade bonds, which are normally sold out within a few days.

PTT Global Chemical, a subsidiary of state-owned oil and gas conglomerate PTT also faced the same problem as its 16.5 billion-baht-bond faced slow sales. The company issued 10-, 12- and 15-year bonds with AA+ ratings and a coupon rate of 2.99%, 3.29% and 3.5% respectively. Although the bond was rated as investment grade, it also took longer-than-expected to sell out.

Previously, the Thai corporate bond market was expected to be active this year, given that the Bank of Thailand had cut its policy rate to a historic low of 0.5%, making coupon rates of corporate bonds more attractive.

In response to the growing concern in the market, the central bank in April set up a 400-billion-baht Corporate Bond Stabilization Fund to buy up some bonds to help increase market liquidity and avoid defaults. Under the framework, companies must seek up to 50% of funds through bank loans if they want the fund to help buy up their bonds.

However, issuers with non-investment-grade corporate bonds that are not subject to the central bank fund have not been reassured by the situation.

According to the Thai Bond Market Association, there are a total of 443 billion baht of corporate bonds due to mature in the second half of 2020. Of the total, some 408 billion baht are classified as investment grade with are rated above BBB-, while the remaining 34.8 billion baht are non-investment bonds with a rating lower than BBB-.

Analysts said the Thai corporate bond market is likely to experience a tighter liquidity crunch in the second half of this year when demand for corporate bonds ebbs and supply will be abundant.

"[The] key reason is that many investors kept their money, waiting to buy the well-secured 1-trillion-baht government bond which is expected to be issued within the second half of this year," said an analyst at Asia Plus Securities.

The Thai parliament on May 31 has approved three executive decrees, allowing the government to borrow one trillion baht to repair the financial system and restore the country's economy that has been hit hard by the pandemic.

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