The initial deal was pulled on September 22 in the wake of the military coup in Thailand which left investors a little unnerved. The deal had been placed and, on the first day of trading, the price widened to 30bp at the open. Later in the day it tightened slightly to a bid/offer spread of 300bp to 270bp over Treasuries or 271bp to 244bp over swaps. But the initial volatility spooked Krung Thai so, in a joint decision with underwriter Merrill Lynch and financial advisors Phatra Securities, the bank decided to withdraw its offering.
It was an unprecedented development for the Asian capital markets.
Merrill Lynch is marketing the latest deal with a pricing guidance of 280bp to 285bp over 10-year US Treasuries, some 15bp to 20bp wider than that of the original deal. The wider guidance reflects the current status of Thai credits which are still trading wider than pre-coup levels. The additional pick-up should, however, go some way to placating investors who had bought in the initial transaction. The new deal is likely to attract the same type of investors from the same geographic footprint.
The deal returns to the market only a few days after the leaders of the coup installed former general Surayud Chulanont as interim prime minister and promised to hold a general election within a year.
When Krung Thai pulled the first bond, it said it was still interested in maintaining a presence in the international debt markets and would wait for the appropriate time to bring a new deal to market. The speed at which it has done this has surprised some market watchers. Most had expected the borrower to wait a few months before re-tapping investors, since Krung Thai has no urgent need for the funds. While Krung Thai plans to use the proceeds of the bonds to strengthen its capital base, it is under no timing restraints regarding its BIS ratios.
One reason for the quick turn around might be the relative resurgence in Thai spreads. The Thai market has improved markedly in recent sessions. Thai five-year credit default swaps swung out from between 32bp and 36bp prior to the coup to between 65bp and 74bp after news of the coup broke. Since then, investors have re-evaluated the level of stability in the countryÆs credits, and Thai CDS have subsequently fallen to between 41bp and 46bp.
Investors are likely to be more forgiving of Krung Thai given the way in which it handled the cancellation of its initial bond. Instead of relying on a force majeure clause, the borrower wanted to be seen to be working with all parties to find a responsible solution that was in the best interest of investors. The public relations exercise appears to have worked with investors voicing their support for the new transaction.
Bond market specialists have been a little more circumspect about Krung Thai's strategy. They say that the coup was unlikely to cause any real long-term instability and that the initial deal would have survived given time to find its market.