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Yoma's bond issue: Baht what about Singapore?

THOSE wondering if Yoma Strategic's decision to issue 2.2 billion in Thai baht (S$95 million) bonds last month over raising cash in Singapore is a sign that the city is losing its appeal as a bond market shouldn't over-imagine things.

Singapore's bond market still has its depth of liquidity, and its support of multi-currency denominated bonds still appeals to foreign issuers, which originate more than four-fifths of wholesale bonds here.

Perhaps the Burmese conglomerate's preference of Thailand as a destination for debt financing is due to its undervalued share price, which eliminates equity financing as an option.

Officially, Yoma has said that it did so to diversify its sources of funding. This way, not only will it have a wide base of equity investors in Singapore, but it will also have a pool of institutional debt holders in Thailand.

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With a tenor of five years and a fixed rate of 3.38 per cent per annum, representing a spread of about 124 basis points above the equivalent maturity Thai government bonds, the bonds also offer a more attractive cost of financing and longer maturity compared to taking a loan from a bank in Myanmar at double-digit rates.

The Singapore Exchange is still Asia's largest and most international debt securities platform, with more than 3,400 active bonds raising over US$1.3 trillion, issued by 950 issuers from 50 countries as at end-January 2019.

Still, some faith has been lost in the Singapore bond market, where defaults have been on the rise, aggravated by the offshore and marine downturn from 2015 to 2016.

But Thailand's bond market has also had its fair share of high-yield bond defaults over the years. So, looking at Yoma's latest bond offer, it is rather the unique commercial and practical considerations surrounding the bond issue, and niche appeal of the Thai debt market, that caused the stars to align and the issuance to succeed.

Market familiarity is key

First off, the familiarity of Thai investors with Burmese companies, given existing business ties between both countries, matters.

Andrew Wong, a credit analyst at OCBC Bank, says that in contrast, international bond investors in the Singapore dollar space could be less familiar and less comfortable with Thai baht bond issues, hence driving up the coupon rate.

He points out that Singapore companies issuing in baht is not new. Companies such as Frasers Property have done so before, and such issuances can be cheaper than funding in Singapore dollar as long as the market is familiar with the borrower. In Frasers Property's case, its Thai controlling shareholder is no stranger to investors in Thailand.

Adisorn Singhsacha, founder and CEO of Twin Pine Group, a boutique advisory firm which advised on Yoma's bond issuance, says the Securities and Exchange Commission Thailand (SEC) and Thai Ministry of Finance have also been building the country as a capital-raising destination for companies in the Great Mekong Subregion (GMS) where borrowing rates are generally quite high.

Referring to countries such as Cambodia, Laos, Myanmar and Vietnam (sometimes abbreviated as CLMV), he says: "Their capital markets are just starting up and there is limited liquidity in the market, so when they look at large sizes of US$20 million and above, it's easier to tap cross-border markets."

He does not see the possibility of more Singapore-listed companies raising debt in Thailand, unless they have business in the region.

He adds that in places such as Vietnam and Myanmar, there are in fact public debt markets, and their governments do issue bonds, but because of their limited liquidity, these sovereign bonds can also "crowd out" the market and siphon away what little existing capital there is from corporates which also want to raise money from the market.

Yet, demand for capital from these companies continues to grow. All four countries in the GMS boast gross domestic product growth of 6 to 7 per cent. Companies are desperate for money to expand.

Thailand thus fits in as a strategically located and readily available capital market with liquidity to be tapped. Thai investors are also willing to take up investments at a lower risk premium. This allows borrowers to issue debt at more attractive pricing, compared to if they were to tap international capital markets, or even Singapore's market for that matter.

Not exempt from drama

To be sure, the Thai bond market is not exempt from drama. In February last year, the SEC filed a criminal complaint against the former chairman of renewable power producer Inter Far East Energy Corporation (IFEC) for not disclosing information on the company's bills of exchange (B/Es) default, while benefiting from it in the process because his 57 million IFEC shares were used as collateral for the company's margin trading, and were not subject to forced sale.

As at December last year, some 40 bond creditors of another Thai-listed company, Energy Earth, requested Anti-Money Laundering Office officials to examine money transactions and asset transfers conducted by the company's management. The coal trader has reportedly been stuck in a business rehabilitation plan for more than two years. It has around 2,800 bond creditors, with total investments worth 5.5 billion baht.

Mr Singhsacha says defaults are common in emerging countries, and they can make investors more cautious. That is why Twin Pine sought to get Yoma's bonds fully guaranteed by the Credit Guarantee and Investment Facility (CGIF), a trust fund of the Asian Development Bank. The bonds are therefore rated AAA by a partner of S&P Global Ratings, which helped the bonds garner strong interest; they ended up more than 2.5 times oversubscribed by Thai institutional investors.

In contrast, a Singapore company with no business in the region would be hard-pressed to convince investors to lend it cash for an extended period.

As such, it appears to be specific, situational factors that worked in the favour of Yoma's latest bond issuance; it certainly does not mean that companies are passing over Singapore to raise debt elsewhere.