New Thai inflation-linked bonds could spark copycats

New Thai inflation-linked bonds could spark copycats
By Ryan Huang | Posted: 15 July 2011 2225 hrs
 
SINGAPORE: The successful sale of Thailand's and Southeast Asia's first inflation-linked bonds could prompt more Asian countries to launch similar deals.

That's according to market watchers who believe investor appetite for such investments will start to grow, amid inflation concerns.

Inflation-linked bonds are investments where the principal sum is protected against inflation.

Rahul Bajoria, analyst at Barclays Capital, said: "Given the fact that it's a new instrument and there are not a lot of other countries in the emerging Asian region who have this product, so for portfolio managers and for investors who do have investment-linked bonds in their portfolio, Thailand would be an attractive pick for them."

The issue size of the bonds was about US$1.3 billion.

The 10-year bonds, with a coupon rate of 1.2 per cent, were launched in the first week of July and closed on July 13.

Thailand's inflation rate in May was around 4 per cent. This means bond investors get a return of 1.2 per cent, on top of their principal sum, subject to the standing rate of inflation at maturity.

According to HSBC, Thai conventional bonds gained only 0.7 per cent this year.

The inflation-linked bonds were especially popular among institutional investors, who oversubscribed by more than one and a half times.

The bonds were open to both retail and institutional investors in Thailand, and only institutional ones overseas. HSBC was the sole bookrunner and global coordinator for the transaction.

With the successful sale, more copycat deals could soon emerge.

James Fielder, HSBC's director and head of local currency syndicate in Asia, said: "Singapore obviously is well funded but we do hope to see keen interest from other key issuers across Asia, particularly Southeast Asia where inflation has been ticking up and where investors will no doubt look for this type of product."

The inflation-linked bonds are mostly for long-term investors. So for those looking to trade them, it might not be so easy at first as the products are new.

But the liquidity will improve because Thailand is expected to re-issue similar bonds for the next few years.

Secondary markets for the bonds are set to open next week.

-CNA/ck

- wong chee tat :)