Jul. 11--Corporate debt issues are expected to reach an all-time record this year, as local firms take advantage of low interest rates to refinance their debt and lock in capital for future expansion.

New debenture issues could reach 300 billion baht this year, topping the record set last year of 280 billion, said the Thai Bond Market Association.

"In the first half alone, new debt totalled 214.628 billion baht from 63 issues," said Nattapol Chavalitcheevin, the ThaiBMA president.

New corporate debt issuance in the first half was 63 percent higher than in the same period last year. The energy sector accounted for 45 percent of new bonds issued in the first half of the year, with banks representing 19 percent, construction and materials 11 percent, property 9 percent, ICT 6 percent and other sectors 10 percent.

Just over half of all new debentures issued had maturities of five to 10 years, with medium-term issues of two to four year terms accounting for 39 percent. Only 7 percent of new issues had terms of more than 10 years.

New debt issuance could hit 320 billion baht for all of 2009, as some 50 billion in planned new debentures is already in the pipeline for launch, said Dr Nattapol.

Additional supply could come from financial institutions looking to refinance outstanding debt as well as from foreign issuers looking to take advantage of lower funding costs in the Thai market.

A total of 12 billion baht worth of debt was issued by foreign entities in the first half, an 8 percent increase from the same period last year.

For the overall market, a total of 5.98 trillion baht worth of debt was issued in the first half of the year, an increase of 14 percent from the same period in 2008.

New Bank of Thailand debt totalled 4.786 trillion baht in the first half, up 16 percent from the same period last year, while treasury bill issuance totalled 484 billion baht, up 84 percent from last year.

State enterprise bond issues totalled 44.6 billion baht, while short-term corporate debt was 245.18 billion and government and savings bond issuance was worth 484.76 billion.

Dr Nattapol said the bond market was expected to remain active through the second half of the year, as investor demand remains high considering that bank deposit rates remain low.

He added that next week's 50-billion-baht issue of five-year savings bonds may have an impact on the bond yield curve and investor perceptions of returns.

The savings bonds pay an average return of 4 percent per year, with 3 percent paid per year for the first two years, 4 percent in the third year and 5 percent in the last two years.

In contrast, the five-year government bond yield was quoted yesterday at 2.88029 percent, down 1.84 basis points.

"[The savings bonds] represent a good choice for investors with 'cold' money. Another option is Korean sovereign bonds or fixed-income foreign investment funds," said Dr Nattapol.

But he added that he personally would prefer Thai investors to focus on the domestic bond market before looking overseas, as market growth would help in providing liquidity to the Thai private sector even as local banks remain conservative in approving new loans.

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