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Thai finmin says restriction on foreign bond issues not a capital control

[BANGKOK] Thailand's decision to bar overseas issuers of bonds in the baht markets from taking their funds out of the country does not constitute a capital control, the Thai finance minister told Reuters.

Apisak Tantivorawong said issuers in the baht bond markets will be asked to keep the proceeds in the local currency for domestic use. Nonetheless, Thailand does not want to control capital movements and does not have any liquidity issues either, Apisak said late on Friday. "We are not that silly to impose a capital control," the minister said.

The comments came after the Thai finance ministry gave approval to four foreign entities to issue baht bonds worth a combined 49 billion baht (US$1.38 billion) on the condition that they keep the proceeds in baht and use them in Thailand.

The four were Central American Bank for Economic Integration (CABEI), Australia and New Zealand Banking Group, National Bank of Abu Dhabi and Malayan Banking Berhad (Maybank).

Thailand has no policy of banning such bond issues but does not want foreign issuers to take advantage of low Thai interest rates to make profits, Apisak said.

"We don't want them to arbitrage, as our interest rates are considered lower than elsewhere, and even though the funds are swapped into dollars, there are still profits," Apisak said. "Otherwise, it will be like all Thai people help shoulder a burden for them. We want the funds raised in our country to benefit our country," he said.

Thailand's benchmark interest rate is 1.50 per cent, near a record low of 1.25 per cent, and is likely to stay low to aid slow economic growth.

Ten-year government bonds yielded 2.1 per cent.

Analysts and market participants said the new rules were unusual but there was no blanket ban on conversion or use of funds by bond issuers. "There was no such condition until recently, and this is due to concerns about possible yield hunting by global issuers, given the relative low bond yields in Thailand," said one investment banker in Bangkok.

The banker said he expected issuers from neighbours Cambodia, Laos, Myanmar and Vietnam would be exempt from the rule because the Thai government had encouraged them to use the country as a source for funding.