Thailand to host first ADB-backed bond

REUTERS - An initiative led by the Asian Development Bank (ADB) to deepen the region's local bond markets looked to be back on track this week after Thai investors expressed early interest in a baht deal from commodity trader Noble Group.

Singapore-listed Noble is planning a debut in the baht market with a guarantee from the ADB-backed Credit Guarantee and Investment Facility (CGIF). The company has already raised funding in US dollars, Singapore dollars and ringgit, but all without guarantees.

The CGIF aims to deepen Asia's bond markets by encouraging local investors to look at credits beyond their own borders, while offering low investment-grade rated issuers an alternative to US dollar funding.

The credit enhancement fund had pledged support for a Singapore dollar bond from Thai Union Frozen last June. However, the deal never took off, with rival bankers suggesting that, even with the CGIF guarantee, local funding costs were still lower for Thai Union.

Thai investors, however, seem more amenable to the structure than those in Singapore, raising hopes for a successful deal this time around.

"We will regard it as a supranational deal, since it is related to the ADB, and it has local AAA rating from Fitch," said one Bangkok-based investor. "However, it all depends on pricing, whether or not it will be attractive enough, we've had no indications on that yet."


Noble, in this case, gets to diversify its funding sources at a manageable cost, earning an AAA (Thai) rating versus its international Triple B.

If the deal materialises, it will provide a solution for other Triple B issuers to tap Asia's more liquid local markets.

On the flip side, local investors get a chance to buy foreign issues in their home currency and with the added safety from the CGIF guarantee.

The CGIF is structured as an ADB trust, with a US$700 million (S$866 million) pool funded by the ASEAN+3 group of nations. This group comprises Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, Singapore, the Philippines, Thailand and Vietnam, while the biggest contributors to the trust are the ADB, China, Japan and South Korea.

Under the CGIF guarantee, a bondholder representative can demand payment from the CGIF upon a non-payment event on the bonds, rather than on a cross-default. Bondholders have the right to accelerate payment upon any other event of default, but when this happens, "CGIF will no longer be obligated to make payments under the guarantee", according to a Fitch rating note.

The idea behind the CGIF is to strengthen financial stability in the region, and make its financial markets more resilient to volatile global capital flows.

A CGIF issue in the baht markets will also boost Thailand's international standing. Thai officials are hopeful that such an issue will bring more foreign credits to its shores, and increase its chances for a rating upgrade to Double A territory.

Noble held a roadshow in Bangkok earlier this week via joint leads HSBC and TMB Bank. The timing and issue details have yet to be finalised, pending investor response and market conditions. As this will be Noble's debut in the local market, investors need time to get familiar with the credit, and also study the CGIF structure.

The company plans to issue up to US$100 million equivalent, about 3 billion baht, just short of the 3.5 billion baht for which it won approval from Thai regulators. The relatively small size indicates the issue is likely to be placed privately.

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