2008年-世界发展银行全球_Thailand_Financial_Sector_Assessment_Program___Fixed_Income_35页_919kb

Summary of Fixed Income Markets in Thailand (April 2008)

Core Content

This document provides an assessment of Thailand's fixed income markets, focusing on the primary and secondary debt markets, the investor base, and the regulatory framework. It outlines the current state of the market, identifies key challenges, and proposes recommendations for improving market efficiency and liquidity.

Main Points

1. Overview of the Fixed Income Market

• Thailand's fixed income market is relatively small compared to other regional countries.
• The market is dominated by government debt instruments, with corporate debt accounting for a smaller share.
• The secondary market is characterized by low liquidity, especially for corporate debt.
• Treasury bills (Tbills) are the most liquid instruments, followed by BOT bills and bonds.
• The foreign debt component is minimal, indicating a lack of international participation.

2. Primary Debt Market

A. Public Debt Instruments

• The Public Debt Management Office (PDMO) issues most government bonds, with BOT issuing central bank instruments.
• Government debt is split into loan bonds and savings bonds (GSBs).
  • Loan bonds are issued at fixed rates, with maturities up to 20 years.
  • Savings bonds are retail instruments, typically with a 3-year maturity, and account for about 21% of the total public debt.
  • The GSB issued in 2002 accounts for nearly half of all savings bonds, maturing in 2012.
• The PDMO plans to issue THB 365 billion in government bonds in FY 2007, but expects a decline to THB 222 billion in FY 2008.
• The primary dealer (PD) system is in place, but it is not effective in enhancing secondary market liquidity.

B. Primary Market for Public Debt

• Both PDMO and BOT use multiple price auctions for issuing debt.
• The frequency of auctions is high, contributing to a “broking” market rather than a market-making market.
• The PDMO issues bonds weekly, with benchmark bonds (7- and 10-year) issued in the second and fourth weeks of the month.
• The BOT had three auctions per month in 2006, but this is expected to reduce to one auction per month in 2007.
• The primary dealer system is being reviewed to ensure it aligns with the objective of enhancing market making.

C. Primary Dealer Function

• The PD system is intended to provide liquidity and market-making services in the government securities market.
• Currently, PDs account for only 37% of secondary market activity, indicating a limited role.
• PDs often hold bonds in their “held-to-maturity” portfolios, reducing their trading activity.
• The SPAf (Security Position Adjustment facility) allows PDs to repo bonds from the BOT, but it is insufficient for meeting their needs.
• A more effective mechanism may involve creating a PDMO portfolio for lending, or exploring flexible bond issuance.

D. Corporate Debt Market

• The corporate debt market is small and homogenous, dominated by investment-grade rated entities.
• Most corporate debt is short-term (commercial paper) or medium-term notes (MTNs), with long-term debt being minimal.
• Only 24 billion baht of corporate debt has maturities of 10 years or more.
• Institutional investors are restricted to investment-grade debt due to prudential regulations, limiting the issuance of non-investment-grade debt.
• Banks are the primary underwriters, often preferring to offer loans rather than underwrite corporate debt.
• Regulatory restrictions prevent sub-investment-grade companies and unrated entities from issuing debt.

3. Secondary Debt Market

• The secondary market is illiquid, with a turnover ratio of 1.05 in 2006.
• Treasury bills and BOT bonds are the most actively traded.
• The secondary market infrastructure is underdeveloped, with limited intermediaries and insufficient competition.
• Restrictions on the number of securities firms are a key constraint on market development.

4. Investor Base

• The investor base is dominated by institutional investors, particularly mutual funds.
• There is a lack of diversity in debt offerings, which limits the scope for investment opportunities.
• Retail investors are mainly involved in savings bonds, which are less liquid and more restricted in terms of accessibility.
• The investor base is limited due to prudential regulations and lack of market diversity.

5. Regulatory Framework

A. SEC Regulatory Policy

• The Securities Exchange Commission (SEC) imposes strict investor protection rules, limiting institutional investors to investment-grade debt.
• This has a discriminatory effect, as it prevents the issuance of non-investment-grade debt.

B. Initiative to Promote Securitization

• There is a need to promote securitization as a tool for financial market deepening.
• The current regulatory framework is not conducive to securitization due to restrictions on liquidity and investment eligibility.

C. Impact of Thai Tax Policies

• Tax policies play a role in shaping the fixed income market, particularly in influencing investor behavior.
• The tax treatment of fixed income instruments affects market participation and investment decisions.

Key Recommendations

A. Government Debt Market

• Reduce the frequency of auctions and increase the size of individual offerings to enhance secondary market liquidity.
• Consider restructuring existing debt to create more meaningful benchmarks.
• Expand the scope of on-lending to domestic debt and explore active debt exchanges.

B. Corporate Debt Market

• Remove restrictions on the issuance of below investment-grade debt.
• Expand private placement offerings to increase market diversity.
• Reduce regulatory burdens on short-term commercial paper.
• Allow institutional investors to invest in high-yield securities by permitting the creation of mutual funds that focus on such instruments.
• Reconsider the definition of illiquid securities and reduce restrictions on their investment.
• Allow hedging strategies and offshore offerings to enhance market flexibility.
• Enable reselling of private placement securities in the secondary market.

C. Other Markets

• Discard long-standing limitations on the number of securities firms to promote competition.
• Introduce derivatives products to help financial intermediaries manage interest rate risk.
• Move forward with introducing futures contracts on the Thai Futures Exchange (TFEX) to enhance liquidity and market depth.

Conclusion

The Thai fixed income market, particularly the corporate debt market, is underdeveloped and illiquid, constrained by limited capital demand, regulatory restrictions, and structural inefficiencies. Enhancing market making, liquidity, and diversity will be critical to improving the market's functionality and capacity. A transition from merit-based to disclosure-based regulation is also recommended to open the market to a broader range of issuers and investors.