HSBC, Thai Farmers Bank

The development of the Thai local bond market has been outstanding this year. And so it is not surprising that the best deal of the year should come from this country. The Bt5 billion ($125 million), split 3-year, 5-year bond deal for the Export Import Bank of Thailand (Thai Exim Bank), showed how sophisticated the local market has become. It also showed how a difficult financing challenge could be turned into an outstanding deal through the informed use of the local capital markets.

Initially, Thai Exim Bank needed to raise around $150 million in the international markets to refinance its maturing, offshore debt. This would have cost around 170 basis points (bp) over Libor if the deal was done through the loan markets, and considerably more if the money was raised through the international bond markets.

However, the lead managers of the bond deal - Thai Farmers Bank and HSBC - recommended to Thai Exim that they raise funds in the Baht bond market and then swap the proceeds into US dollars. This therefore allowed the borrower to create a synthetic dollar liability while selling the credit onshore, taking primarily Thai baht risk. The timing of the deal and momentum created through the marketing allowed this structure to happen. Because the swap market was liquid and Baht interest rates were low, the issuer managed to achieve equivalent sub-Libor pricing.

In the end, over 20 investors came in for the bond at an aggressive yield of 70bp over government bond yields. The investor group comprised a mix of pension funds, banks and domestic insurance companies. The three-year, Bt3 billion tranche was one and a half times oversubscribed, while the Bt2 billion, five-year tranche was two and a half times oversubscribed. Once the swap had been priced in, Thai Exim Bank had raised dollar funds at Libor minus 70bp.

This was a hugely price efficient deal which showed that with the right market timing, the local markets can be as good for the issuers as the international markets. Moreover, it solved a specific financing need for the issuer in a way that greatly enhanced Thai Exim's balance sheet. Sold at a price of 100%, the bonds carry a coupon of 5.1% for the three-year tranche and 6% for the five-year tranche. Moody's rates the issue at Baa3.

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