Tuesday, June 2, 2009

Thailand Savings bonds issue on govt agenda

The Finance Ministry will issue savings bonds worth between Bt20 billion and Bt30 billion as part of its efforts to raise Bt400 billion, provided its fund-raising plan is approved by the Constitution Court and Parliament, a ministry official said yesterday.

The court will today rule on whether the executive decree violates the Constitution, and then Parliament will vote on it.

The savings bonds' coupon rate could be 15-30 basis points above the three-year fixed-deposit rate, with a tenure of two to five years. The minimum investment will be Bt10,000, while the maximum will be set at Bt500,000.

The exact coupon rate and maturity has not yet been finalised as Finance Minister Korn Chatikavanij is awaiting the court's ruling, the source said.

He expected the bonds to be warmly received by savers, given the absence of risk and the prevailing low interest rates.

Under the executive decree, the ministry plans to issue bonds totalling Bt150 billion to finance the budget deficit. After the savings bonds issue, standard bonds would be offered to institutional investors with a coupon rate lower than that offered for the savings bonds. The rate is expected to be at least 50 basis points below corporate bond rates, according to the source.

Government bonds are unlikely to affect the market due to low interest rates and high liquidity. However, the source said that if the government's bonds led to a sharp increase in market rates, it would opt to borrow more from banks.

"We have to make sure that we don't induce a huge cost to taxpayers and raise funding costs for private firms that are preparing to issue bonds," the source said.

Additional bond issues will follow when details of the government's investment projects - part of its Bt1.56-trillion three-year investment scheme - are ready. Details of these are expected to be available by June 15, said the source.

In a rough breakdown, investment in the agricultural sector including irrigation projects will cost Bt50 billion to Bt60 billion, education Bt70 billion to Bt80 billion, road projects Bt30 billion, and public health Bt30 billion.

Korn earlier said the government needed to invest Bt230 billion in these projects this year.

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