Education Corner

About Thai Bond Market

The Thai Domestic Bond Market
The Thai bond market has demonstrated remarkable development since the 1997/98 Asian financial crisis. The government has continued to issue bonds over the past two decades with the primary objectives being to finance the annual budget deficit, support economic development, and restructure public debt. The bond market has now become a significant funding source of government and corporate sectors as well as a means for monetary policy management by the central bank.
With the robustness of the bond market, the main pillars of Thai financial market- bank loan, stock market and bond market have been increasingly more balanced. The proportion of bank loans to GDP has declined from 128% of GDP in 1997 to 93% of GDP while the bond market has grown from 12% of GDP in 1997 to 81% of GDP as of June 2019. The stock market capitalization has also grown from 24% of GDP to 107% of GDP during the same period.
The total outstanding of Thai bond market was THB 13.3 trillion (USD 443 billion) as of June 2019. Government bonds (including T-bills) dominate the market, accounting for 37% of total. Corporate bonds ranked the second, accounting for 29% while the central bank bonds accounted for 27% and state-owned enterprise (SOE) bonds accounted for 7%.
Thailand GDP
Types of debt instruments
Government Debt Instruments
1. Treasury Bills (T-Bills) are short-term debt instruments issued by the Ministry of Finance (MOF) with maturities less than 1 year. The bills are sold on a discount basis.
2. Government Bonds are medium to long-term debt instruments issued by the MoF, which consist of two types; Loan bonds (LB) and savings bonds (SB). Loan bonds (LBs) have maturities of between 1 year and 50 years, of which 3-, 5-, 10-, 15-, and 20-year bonds are benchmark bonds. While LBs are issued for financing budget deficits and government debt restructuring, savings bonds are issued to provide households with an alternative source of savings.
3. Bank of Thailand (BoT) bills and bonds are issued by the central bank as part of money market operation. The terms are less than one year for bills and up to 3 year for bonds.
4. State Owned Enterprise (SOE) Bonds are medium to long-term debt instruments issued by State Owned Enterprises. These can be categorized into 2 types; guaranteed by the MOF and non-guaranteed, guaranteed bonds account for approximately 70% of total.
Corporate Debt Instruments
1. Corporate bonds include by the corporate sector. Majority of corporate bonds issued in Thailand are fixed-rate, plain vanilla and bullet bonds. There are increasingly various features being offered in recent years, such as structured notes, securitized bonds, perpetual bonds as well as BASEL III bonds which are offered by commercial banks.
2. Commercial paper includes Bills of Exchange (B/E), Promissory Notes (P/N), and Short-term Debenture. These instruments are typically less than 270 days in maturity.
3. Foreign Bonds are Baht-denominated bonds issued by foreign institutions including international financial institutions such as ADB, Korea Exim Bank; and foreign governments such as the Government of Lao PDR which has become the most frequent issuer of foreign bonds in Thailand.
4. Foreign currency bonds (FX bonds) are foreign currency denominated bonds offered in Thailand by Thai or foreign institutions. As of Dec 2019, there were 3 types of currencies being issued; USD, CNY and EUR.
Click here for the current outstanding value of each type of debt instruments.
Primary market process
Government T-bills and bonds as well as central bank bills/bonds are auctioned via the Bank of Thailand on a competitive bidding method. The Public Debt Management Office/MoF uses “reopenings” of outstanding issues to build up sizable benchmarks along the yield curve. Institutions who are members of the BoT’s BAHTNET payment system are eligible to tender bids in the auctions. All issuance terms and sizes are pre-announced and can be found on the ThaiBMA’s website.
Click here to see auction calendar
State Owned Enterprise bonds are auctioned at the Public Debt Management Office in a Dutch or single-price based typically to a sole underwriter as the issuance sizes are relatively small compared to government and BOT bonds.
Auction Schedule*
Issuer Auction Date Auction Types
MoF: T-Bills (TB) Mondays Multiple Prices
BoT: Central Bank Bills (CB) and BOT Bonds (BOT) Tuesdays Multiple Prices
MoF: Government Bonds (LB) Wednesdays Multiple Prices
SOE Bonds Thursdays Single Price
Issuance of corporate bonds is subject to SEC approval. There are 2 major types of placement; Public Offerings (PO) and Private Placement (PP). For public offering bonds, full disclosure and investment grade credit ratings are required. For private placement, it can be categorized into 3 groups which are subject to different level of regulatory requirements. They are
1) PP10: offering to a limited maximum of 10 investors within any 4-month period specific. PP10 do not require SEC approval.
2) II (Institution investor): offering to institutional investors.
3) HNW (High Net Worth): offering to investors qualified as high net worth by SEC regulations. HNW offerings require SEC approval and additional disclosure information including key financial ratios and appointment of a bondholders’ representative.
Trading mechanism
Bond trading takes place on an Over-the-Counter (OTC) basis, negotiating through telephone or via voice brokers. Dealers (financial institutions holding bond dealing license granted by the SEC) are required to report all bond transactions to ThaiBMA within 30 minutes after trades. Trading data both intraday and end of day basis are published on ThaiBMA websites. Prices disseminated by ThaiBMA are used as market reference for Mark-to-Market (MTM) purpose.
Click here for real-time market dashboard and end of day market report.
Clearing and Settlemen
Bond settlement is handled by Thailand Securities and Depository Co. Ltd (TSD), a subsidiary of the Stock Exchange of Thailand (SET). Cash settlement is done through BAHTNET system operated by the Bank of Thaialnd (BOT). Government bonds are required to be cleared and settled on a Delivery versus payment (DVP) basis. BOT is a registrar for government bonds, BOT bonds and SOE-guaranteed bonds while registrar functions of corporate bonds are mainly performed by commercial banks.
Supervision
The Bank of Thailand (BoT) supervises the operation of banking and finance businesses while the Securities and Exchange Commission (SEC) supervises the primary and secondary market for securities business. The issuance and offering of securities are governed by the Securities and Exchange Act 1992 (B.E. 2535).
The Thai Bond Market Association (ThaiBMA) was mandated as a Self-Regulatory Organization (SRO) for bond dealing business under SEC Act B.E. 2535. ThaiBMA is also responsible for being bond information center and bond pricing agency as well as establishing market standards & convention. It was initially set up as the Bond Dealers Club (BDC) in November 1994 and transformed to the Thai Bond Dealing Centre (ThaiBDC) in April 1998. In December 2004, the Minister of Finance initiated a major reform of the Thai bond market. One of the measures was to centralize the trading platform at the SET, while ThaiBDC would expand its functions to become the SRO and information center for the bond market and changes its status to Thai Bond Market Association (ThaiBMA).
ThaiBMA was granted the license of a securities-related association under the SEC Act on 8 September 2005. It was mandated by SEC to perform two main five functions; SRO and bond information center. As SRO, ThaiBMA performs market surveillance and member inspection to ensure that the bond market is operated in a fair manner. As bond information center, ThaiBMA collects, develops and publishes information on the bond market, including trading data , yield curves , indices , and bond features information. In addition, ThaiBMA is responsible for being bond pricing agency and establishing market standards and best practices as well as being the key institution to promote bond market development.
Bond registration
All bonds issued in Thailand are registered with ThaiBMA, with the exception of limited number private placements (PP10) and short-term commercial paper. Bond registration is defined as the process of issuers providing bond information to ThaiBMA for public disclosure, and is a condition set by the SEC for the offering of corporate bonds in the primary market.
Government bonds, BOT bonds and SOE bonds are automatically registered with ThaiBMA without fee charged. For corporate bonds, ThaiBMA registration process has been integrated with the SEC filing process (so called IPOS system). When bond issuers submit their filing to the SEC through IPOS and approved by the SEC, the bond information will be electronically sent to the ThaiBMA registration database and available on the ThaiBMA website and results in the publication of Mark-to-market prices for mutual, pension, and provident funds.
Taxation
Investors in Thai bond market are subject to the following taxes;
1. Withholding Tax. It is classified into three categories:
(i) interest income;
(ii) capital gains; and
(iii) discount (the difference between the redemption price and offering price).
The tax rate is determined by type of income and type of investors. Generally, for resident investors, withholding tax is applied upon payment at rates of 15% on natural persons and 1% on juristic persons. For mutual funds, coupon interest received from bond investments since 20 August 2019 onward is subject to withholding tax of 15%. For non-resident investors, withholding tax is exempted for interest received from government and government agency bonds. Capital gain tax is subject to the withholding tax rate of 0-15%, depending on Double taxation agreement (DTA)
More details on taxation http://www.thaibma.or.th/Doc/convention/ThaiBMA/6Taxation_June2014.pdf
Revenue Department Tax Treaties http://www.rd.go.th/publish/6005.0.html
2. Specific Business Tax (SBT). Banking, financial, and securities institutions are subject to SBT on interest income, discounts, fees, and gross profits-before-expenses from any transactions in bonds. The SBT on incomes relative to bonds is levied at 0.01% and is to be remitted to government authorities.
Dealers and Primary Dealers
Dealers are financial institutions holding bond dealing license granted by the MOF. They are required by the SEC to be ThaiBMA members. In addition, Inter-dealer brokers (IDB) are required to be ThaiBMA’s extraordinary members. As of December 2019, there are a total of 55 members comprising of 14 Thai commercial banks, 6 foreign commercial banks, and 31 securities companies and 4 IDBs. These dealers with licenses from the SEC are free to trade but in general there are sector differences such as commercial banks being active in the overall market based on capital while securities companies are looking to fill a niche in the corporate bond market.
Primary Dealers (PD) can be classified into 2 types based on regulated authority; Outright PD appointed by MOF and Bilateral PD appointed by BOT. In general, they are financial institutions appointed by the MOF/BOT to participate in the government bond and/or BOT bond underwriting and trading activities. In addition, outright PDs are obliged to submit quotations on government bonds to ThaiBMA on a daily basis to generate reference yield curve.
Investors
Major investors in government bonds were institutional investors. As of 30 June 2019, Insurance companies are the major holder in government bonds, accounting for 28% of total. Government agencies, Bank of Thailand and Social Security Office (SSO) together shared the second ranking with 19% share. Non-resident investors held 17% of total government bond outstanding; however, in term of trading NR contributed nearly half of total turnover in government bonds.
For corporate bonds, individual investors become the largest holder, accounting for 31% of total corporate bond outstanding. Insurance companies and mutual funds were the second and third major holders, accounting for 18% and 12% respectively.
Credit Rating Agencies
Thailand has two local credit rating agencies; TRIS Ratings Co. Ltd. (TRIS) and FITCH Ratings (Thailand) Ltd. Credit rating requirements in Thai bond market are determined and regulated by the SEC. According to current regulations, bonds issued through public offers (PO) must have a credit rating from an authorized credit rating agency.