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Published on December 17, 2007

Povongthip Poranmapoin, a director of the Fund Operation Department, said the fund would sell the bonds to the central bank instead of financial institutions because it did not want to see supply in the market increase, which could lead to a plunge in bond prices and a surge in yields.

"If we issue FIDF bonds in terms of private placement, the bond market cannot become volatile," she said.

The Bt56 billion worth of bonds will be the last batch issued to refinance the fund's short-term debts totalling Bt180 billion in the repurchase market, which is scheduled to shut down on February 13.

However, Nattapol Chavalitcheevin, president of the Thai Bond Market Association, believes that a flood of supply and its subsequent effect on bond yields matter little. Bonds, as an investment instrument, have recently had to ward off new competitors, namely foreign investment funds that invest in overseas bonds and equities. The attraction of bonds also depends largely on the availability of hedging tools, such as bond futures, he said. Unfortunately, the Thai bond market is not so well equipped.

Bt6 billion in bonds are left over from the Bt80 billion worth of savings bonds sold in November while Bt50 billion in bonds were earlier to be issued for financial institutions.

The fund has previously issued Bt50 billion of FIDF bonds and Bt74 billion of savings bonds.

Povongthip said the fund had not yet concluded a return for the bonds, although it did not need to compensate for the withholding tax of 15 per cent for the central bank as it did for savings-bond holders.

She dismissed concerns that the BOT's move would contribute to a flood of liquidity in the system. She said the central bank would issue BOT bonds to absorb excess liquidity at the same time as the fund repaid its debts to creditors in the repo market.

"The central bank may absorb liquidity shortly before or after the fund's debt repayment. As a result, liquidity in the market will be unchanged," she said.

The central bank could use the FIDF bonds as collateral for its open-market operation with primary dealers, said the director.

Earlier Suchada Kirakul, the assistant governor, said the central bank had regularly issued BOT bonds to soak up liquidity, and they would also be able to absorb liquidity incurred by the fund's debt payment.

Povongthip said the fund would have income from selling its shareholding in four commercial banks, including BankThai, Siam City Bank and Krung Thai Bank, and land and returns from the Thai Asset Management Corporation, which will open a bid for non-performing assets previously owned by defunct financial institutions. The income is expected to be enough to pay back bondholders.

"We actually have a credit line of about Bt80 billion with the Finance Ministry, but we try to raise it ourselves first," she said.

Anoma Srisukkasem,

Ki Nan Tsui

The Nation