The decision to retract the bond deal comes in the wake of Monday night's military coup in Thailand which left investors a little unnerved over the deal's future. In its first day of trading the bonds widened 30bp at the open but had tightened slightly to a bid/offer spread of 300bp to 270bp over Treasuries or 271bp to 244bp over swaps at the end of WednesdayÆs trading. There was no secondary movement on Thursday.
In a press release issued on Thursday, Merrill Lynch stated that: ôFollowing discussions between Krung Thai Bank, underwriter Merrill Lynch, financial advisor Phatra Securities, investors and legal counsel, the collective decision to withdraw the offering was made to ensure the best long-term interests of all parties and to ensure the continued favorable access to the international capital markets going forward for Krung Thai Bank and other Thai entities.ö
As a result, the notes, which have traded on a "when, as and if issued" basis since September 19, will not be issued. Settlement for the original transaction was slated for September 26.
Interestingly, the lead and borrower chose not to rely on a force majeure clause. Instead 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 notwithstanding, it is an unprecedented development for the Asian capital markets, and may indeed go some way to furthering the development of ThailandÆs international debt market.
Investors were impressed that Krung Thai took the initiative to protect their concerns. ôWe know that Merrill found themselves in an unenviable position in having to pull a deal which had suffered from some of the most unfortunate timing in the history of the capital markets,ö says one Asian-based investor. ôI was impressed with the final decision and the manner in which it was handled. They have done the right thing here and, all things being equal, we will support a new Krung Thai deal when they choose to come back to the market.ö
Meanwhile, regional bankers have praised Krung Thai for taking a longer-term view on its issuance reputation and the overall legitimacy of the Thai markets. They say if Krung Thai had not withdraw the deal it would have reinforced a preconception fostered after the Asian crisis that regional issuers are more interested in their own needs rather than those of investors.
Those close to the deal were quick to establish that Krung Thai is still interested in maintaining its presence in the international market, and will now wait for the appropriate time to bring a new deal back to market.
Indeed Krung Thai has no imminent need for raising funds. Proceeds from the abandoned bond were to be used to strengthen the banks capital base; however the bank has no timing burden in terms of BIS ratios.
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