Bankers were surprised to receive a new RFP for a deal by the Kingdom of Thailand last Friday. Ever since the financial crisis, the government's constant prevarication over its return to the international bond markets has been a continuing source of amusement and scepticism for most market practitioners.
Only last autumn, the Thai government mandated a four handed deal to raise $800 million to $1 billion, but then pulled back at the eleventh hour pleading difficult market conditions. This time round, it appears more serious in its intent, if for no other reason than the structure of the deal gives it less chance to suddenly back out.
In the RFP, the government says it will seek bids on a $300 million five-year FRN on April 21. One banker who received the proposal described it as, "a strange size, strange structure and strange timing, hitting everyone's desk just before Songkran."
Most coverage officers have long believed the sovereign should set a fixed rate benchmark and of sufficient size, to give a deal the kind of liquidity, which the country's outstanding April 2007 deal lacks. And all agree the eventual lead manager stands to make no money at all. This is based on a belief that the winning bid will almost certainly be pitched at the very aggressive end of where it can be placed out to investors and will be inclusive of any fees.
Indeed, the sovereign's last prospective deal had headline fees of only 12bp and net fees of 8bp after the four leads - Citigroup, Deutsche Bank, JPMorgan and Morgan Stanley - agreed to absorb a lot of expenses.
In Thailand's favour, secondary market levels have continued a tightening bias all year and a new deal should price through Malaysia given like-for-like levels on a Libor basis.
Thailand's 7.75% April 2007 deal is, for example, trading at 115.73% to yield 3.5%, equivalent to 65bp over five-year Treasuries and 70bp over Libor. By contrast, Malaysia has a June 2009 bond yielding 4.43%, representing a spread of 158bp over Treasuries, or 100bp over Libor.
Credit analysts also believe that Thailand is due for a ratings upgrade from BBB-/BBB-/Baa3. All three agencies have the country on positive outlook. "The next Moody's review of Thailand sometime in H1 is likely to lead to an upgrade," says Barclays in a research report earlier this year. "The other two agencies are likely to follow Moody's sometime in H2."
