TMB marshals bond investors

Rare international bond issue from Thailand receives a strong investor response, prompting the syndicate to dispense with any new issue premium.
Military junta now promising elections in 2017
Military junta now promising elections in 2017

TMB Public Bank became the first major Thai bank to issue dollar-denominated debt since 2014 on Wednesday with a capped $300 million issue. 

The five-and-a-half-year Reg S offering also marks TMB's first transaction in a decade and will rank as its only outstanding dollar-denominated offering. 

The Kingdom's banks have only ever made rare forays into the international debt markets.

Issuance has been particularly sparse since a military coup ousted the country's last democratically elected prime minister, Yingluck Shinawatra, in May 2014 and replaced her with General Prayuth Chan-ocha.

Unsurprisingly, this rarity value combined with the bond market's current Fed-induced momentum created a strong order book that peaked at $2.1 billion. This led price guidance to be fairly aggressively revised down from an initial level at 200bp over Treasuries to between 175bp and 170bp over. 

As a result the order book dropped down to $1.8 billion.

Final pricing for the Baa2/BBB-/BBB- rated deal via TMB's Cayman Island branch was fixed at par on a coupon of 3.108% to yield 170bp over Treasuries. 

A tota of 143 accounts participated with a geographical split of 82% Asia and 18% Europe. By investor type 69% went to fund managers, 12% to banks, 11% to insurers and 8% to private banks.

Syndicate bankers estimated there was no new issue premium based on an interpolation of where a new Kasikorn Bank deal would price. 

Thailand's fourth largest bank by assets has a $300 million 3.5% October 2019 deal outstanding. This was trading Wednesday on a G-spread of 135bp. 

Bankers estimated the curve from 2019 to 2021 is worth about 15bp to 20bp, bringing theoretical Kasikorn 2021 paper out around the 155bp level.

However, Kasikorn has a one-notch higher rating from Moody's and two notches higher from Standard & Poor's and Fitch. Bankers estimated this was worth a further 15bp.

The only bank with a relatively full curve is Bangkok Bank, which has a Baa1/BBB+/BBB+ rating. It has a 3.3% October 2018 bond outstanding, a 4.8% October 2020 bond and a 3.875% September 2022 bond. 

On a Z-spread basis there is 19bp on its curve between the 2018 and 2020 bonds and 12bp between the 2020 and 2022 bonds. 

The $400 million 2020 bond was bid Wednesday at 108.91% to yield 2.71% or 136bp on a Z-spread basis according to one broker's prices. Its $800 million 2022 bond was bid at 104.8% to yield 3.06% or 148bp on a Z-spread basis according to the same broker. 

Kasikorn's $350 million 3.5% 2019 bond was bid at 103.3% to yield 2.53% or 126bp on a Z-spread basis. 

The Thai banking curve began 2016 on a rising trend. This peaked around February 12 when Kasikorn's 2019 deal was bid around the 104.22% mark. The bond then dropped by a point to hit a new low on March 16 before picking up again. 

The syndicate will be hoping that secondary market momentum and unsatisfied primary market demand will enable the deal to trade up. The most recent international deal - the Republic of Indonesia's $2.5 billion sukuk - is back now at its re-offer after immediately trading down on Friday thanks to its aggressive pricing and upsized issue size. 

Going Dutch

TMB is Thailand's seventh largest bank by deposits and savings with a respective 5.2% and 4.9% market share. However, counterbalancing its smaller size compared to peers is the 30% stake held by ING, which was also one of the bookrunners on the bond deal. 

In its online roadshow the bank flagged the fact that ING bankers hold senior positions within TMB including the roles of chief risk officer, chief operating officer and head of retail banking. 

In a ratings release S&P also said the bank's collaboration with ING has helped improve the bank's business diversity and risk management. Thailand’s Ministry of Finance holds the second largest stake on 26%.

TMB was formed in 2004 as the result of a three-way merger between Thai Military Bank, DBS Thai Danu and Industrial and Finance Corp of Thailand. DBS had originally hoped to gain full management control, but after failing to achieve this aim decided not to participate in a 2007 re-capitalization, which saw ING pay $673 million for its stake.

The Dutch bank has spent the past decade helping to turn TMB into a more deposit-led institution and reduce its wholesale lending in favour to better risk-adjusted lending to SMEs. It has helped put all of its ratios onto an improving trend, with NPLs dropping from 5.67% in 2011 to 2.99% at the end of 2015.

Net interest income has also been rising on a compound annual growth rate (CAGR) of 13% over the same period, increasing by 14.2% in 2011 and 23.2% in 2015. TMB's net interest margin has also improved from 2.4% in 2011 to 3% in 2015. 

Khun Chirasak Chantarachoti, the bank's head of balance sheet and liability management, spent much of the new bond’s online roadshow explaining how TMB has spent the past five years closing with gap with its peers. He said that testament to its success is the reduction in the bank's average cost of funding to 1.9% and its average cost of deposits to 1.4%.

This should help the bank weather a system wide deterioration in asset quality, which pushed up TMB's NPLs by 14bp over the course of the past financial year. S&P believes they sector will see NPL's rise a further 20bp to 30bp during 2016. 

At the end February the agency said there was only a very "distant prospect" of economic recovery or an elected government in Thailand. But it added that the Thai banks are well capitalised and have built up provisioning levels to buffer any deterioration. 

At the end of 2015, TMB reported a capital adequacy ratio (CAR) of 16.7% and tier 1 ratio of 11.3%. This represents a slight drop from 2014's 16.7% level thanks to the redemption of Bt8 billion in subordinated debt last April. 

According to its online roadshow the bank has visited the bond markets twice over the past two years. In 2014 it raised Bt15 billion in Basel-III compliant Tier 2 debt and in 2015 it launched Thailand's first dim sum bond when it raised Rmb600 million from a three-year issue with a coupon of 5.5%. 

Joint global co-ordinators on the new bond deal were: HSBCING and Standard Chartered

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