The Thai government has recently announced its consideration to issue foreign currency-denominated bonds valued at US$1 billion, approximately 36 billion baht. This announcement has sparked debates over the worth and risks associated with such an undertaking.
If these bonds are released in US dollars, it would be a landmark occasion as the first such issuance by the Thai government in 20 years. The last instance of foreign currency bond issuance took place in 2005, when the government released 48 billion yen (equivalent to US$318,794,400) worth of three-year Samurai bonds to refinance a maturing loan from the Japan Bank for International Cooperation.
Key Takeaways
- The Thai government plans to issue foreign currency-denominated bonds valued at US$1 billion, with US dollars being the most likely choice due to their widespread use and benchmark status.
- While foreign currency bond issuance offers a financing alternative for Thailand, it also exposes the country to exchange rate risk and higher borrowing costs based on interest rates.
The Public Debt Management Office (PDMO) under the Finance Ministry is examining the feasibility of offering these bonds in several currencies, including US dollars, yuan, and yen.
According to PDMO director-general Patchara Anuntasilpa, the most likely choice is dollar-denominated bonds due to its widespread use and benchmark status. The funds from any international bond sale would likely be used to finance sustainability-linked projects that add value to the economy.
However, issuing bonds overseas does come with drawbacks. It exposes Thailand to exchange rate risk, making the repayment of international debt more costly if the baht devalues. Additionally, the cost of borrowing would increase based on interest rates.
For example, 10-year US Treasury notes carry an interest rate of 4.6%, whereas domestic bonds of a similar maturity period only carry an interest rate of 2.5%. Despite these challenges, international bonds present an attractive financing alternative for Thailand, especially as the country transitions from low to middle-income status and seeks to diversify its investor base.
