Khun Sommai, what is your general sense of where the Thai economy is today?
Sommai: 
It's clear that Asia's real economy is growing faster and has more room for growth than in Europe or America. For example, in the energy sector, there is a need to produce relatively more electricity here than in the West. You can see this in every sector. Corporate profits, however, depend on other things, and these have not been as high in Thailand as 10 years ago. Thailand faces more competition from China, which has cheaper labour and raw materials. The only thing that is cheaper here is the cost of money, with our low interest rates, so companies don't need to make as high a profit.
Another benefit for Thailand is that we are surrounded by poorer countries. If we can set trade and investment treaties, we have easy access to work with them. Thailand is like a big brother and the baht is used widely in these countries. We are considering lending to some of their development projects in baht, and in discussion with the World Bank and the ADB to finance projects in baht, not dollars; that way these governments can hire Thai contractors.
Does the latest cabinet reshuffle, which saw Finance Minister Somkid give up his dual role as deputy prime minister, augur any changes within the ministry?
I don't think so. We keep the same minister, which is good. Two posts were too heavy a load, so now he can focus on just running the Ministry of Finance. This is very important for us; we have a lot of work to do.
How is the local bond market developing?
The capitalization for government, state enterprise and private corporate debentures is almost Bt2 trillion, up from Bt450 billion in 1997. It's liquid, but only big companies can utilize funds from the market. Daily turnover is around Bt6-8 billion, sometimes larger than the turnover on the stock market.
There are some legal changes coming up regarding how the Kingdom issues bonds. What's that about?
The Public Debt Management Act has been proposed to promote state-owned enterprises tapping the bond market themselves without a government guarantee. If they can't do it, we would do it for them but in return for a fee. We'll make it cheaper for them to get a rating and go to the market alone. This Act is in the process of moving from the Cabinet to parliament, where it should arrive before the close of this session in late November.
This Act also authorizes only the Ministry of Finance to borrow for the Kingdom, and not the Bank of Thailand. It also will allow us to issue bonds and bills regardless of whether the government's budget is balanced or in surplus. Before, we could not issue bonds and promote domestic issuance. This Act will ensure active bond issuance all the time.
You have a global bond issue coming up in November.
Yes. Our public foreign debt is now $20.4 billion, versus a total foreign debt of $64.8 billion. So the government debt is not a big portion. Of our $20.4 billion we have concluded a restructuring of $3.75 billion. Part of that involves refinancing $1 billion via a global bond. The rest of the public debt is being refinanced through syndicated loans. We can reduce foreign debt by the middle of next year by $2 billion by refinancing with our own resources as well as borrowing from abroad.
You have four investment banks - Deutsche, Solly, JPMorgan and Morgan Stanley - all co-leading this bond deal. Why so many?
My intention was to have only two, but these banks are very....... After the crisis we needed more good friends. They have expressed their intention to help us.
Fees?
The fees are almost nothing. We want to pay a reasonable fee; we don't need it to be too low. But since they offered at that price...
What kind of pricing do you want to achieve?
The spread is our concern, because it reflects so many things. The existing spread on our last issue, due 2007, is not a real benchmark: it is a small issue and thinly traded. We don't have an exact benchmark. We keep our eyes on Malaysia. Their benchmark issue trades 150-160 basis points over US Treasuries. We are now going to issue a 10-year global, which means we have a real intention to set up a liquid benchmark for the Kingdom. In future, we will have to reopen and do something again. If this deal is not successful I won't be very happy.
So is achieving a similar spread to Malaysia's your idea of success?
If our spread is too low or too high versus Malaysia's it means something is wrong. Many bankers say that we can be close to Malaysia. When we did our Yankee bond before Malaysia's benchmark in 1991, Thailand achieved a better spread. But since then, Malaysia has borrowed quite steadily.
Are market conditions right?
The market is looking forward to this issue. If there is a war in Iraq, we would have to cancel and wait and see. But we have short-term loans for refinancing so it wouldn't damage us. In normal circumstances, however, we are comfortable. Two months ago I did a non-deal roadshow, and I have a good feeling we will succeed.
Let's talk about privatization. SCB Securities and BT Securities had to eat a large portion of the BankThai deal they underwrote.
This was the worst time in the past two years in terms of the Thai stock market to launch an IPO. BankThai needed Bt7.7 billion, a small amount. But the deal had to go ahead because we have others in the pipeline. We gave BankThai until the end of the year, however, it was up to them to choose when to go. They were too confident and chose September.
BankThai has promised the underwriters to buy back shares, which it must hold for six months, and these shares cancel if held for three years. You have reduced the government's share down to 49%, but if public shares are bought back and taken out of circulation, BankThai could effectively re-nationalise itself.
We would never let that happen. It has been our intention to privatize the banking sector in one shot. We started with BankThai because it is small. Having government ownership go back and forth must be avoided. If BankThai buys back shares, they will also buy shares from the FIDF [the Ministry's rescue arm].
What about fully privatizing Krung Thai Bank?
The minister wants to keep it as a state bank for a while. We utilize it in many aspects to help the government boost the economy. It would not be fair to turn it into a private bank; this needs some time.
Private-sector banks complain, however, that big state banks use government backing to lend to their best clients at lower rates, and with looser credit controls - in effect, distorting the level playing field and threatening the health of the entire bank sector.
This has been realized for a long time. But no government could solve its problem otherwise. Krung Thai Bank must lend to SOEs including weak SOEs. If these companies go to Bangkok Bank, they can't borrow. The burdens of Krung Thai have been passed to it by past governments; it's not good for Krung Thai. It's a huge state commercial bank that cannot be cleaned up at once. Its burdens need to be cleaned piece by piece. That Minister Somkid doesn't want to privatize the bank immediately is right.
Has the poor reception for BankThai spoiled the market for the Krung Thai deal?
Actually this has been good for Krung Thai. It shows they will have to work based on reality. And it will be good for investors.
