Types of Government Debt Securities

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There are several types of government debt securities as follows:

1. Government Debt Securities

1.1 Treasury Bills

Treasury bills are treasury securities having a maturity period of one year or less and sold in the primary market by auction at a discount from face value. Upon maturity the face value will be paid to the holder.

Treasury bills were first issued in Thailand in 1945, worth 50 million baht with a maturity period of 4 months. The issuance of treasury bills continued until 1990 and no treasury bill was issued since then. However, since 27^th September 1999, the government has resumed issuing treasury bills until now.

At present, treasury bills typically have 28-day, 91-day, and 182-day maturity periods.

1.2 Debt Restructuring Bills

Debt restructuring bills are treasury securities having a maturity period of one year or less and sold in the primary market by auction at a discount from face value. Upon maturity the face value will be paid to the holder.

The issuance of debt restructuring bills is authorized under section 7 of the Emergency Decree Authorizing the Ministry of Finance to Raise and Administer Loans for the Financial Institutions Development Fund B.E. 2541. Debt restructuring bills were first auctioned in March 2001 and continued until 2007.

Debt restructuring bills have maturity period based on number of days, typically having a 182-day maturity period.

1.3 Government Bonds

Government bonds are debt securities issued by the government, having a maturity period of one year or longer. The primarily objectives are to finance the budget deficit in each fiscal year or when the expenditures exceed the revenue, to support social and economic development and to restructure public debt.

The first government bonds, worth 1 million pound sterling, were issued by the Royal Siamese Government in 1905 called “European Bonds 1905”, to raise fund from investors in London and Paris capital markets. The proceeds were used to finance railroad construction projects, strengthen treasury reserve, and finance other social services. These bonds were in bearer form having a 40-year maturity with a 4.5% coupon per annum.

The first domestic government bonds, called “Loan Bond B.E.2476”, were issued in 1933 during Phraya Manopakorn Nititada government. These bonds were issued according to the Domestic Loan Management Act B.E. 2476 of Baht 10 million, in which the sale was managed by the Ministry of Finance. The bonds were in bearer form having 10-year maturity with a 4.5% coupon per annum.

At present, government bonds are issued with different names, e.g. government bonds, special-issue government bonds, debt restructuring government bonds and debt management government bonds.

Interest payments of government bonds are made at regular intervals throughout the life of the bonds, normally twice a year. Upon maturity, the principal of face value will be paid along with the last interest payment.

1.4 Government Savings Bonds

Government savings bonds are debt securities sold, as an investment or savings alternative, to individuals and non-profit institutions such as foundations, the Thai Red Cross Society, and the National Council on Social Welfare of Thailand.

Interest payments of government savings bonds are made at regular intervals throughout the life of the bonds, normally twice a year. Upon maturity, the principal of face value will be paid along with the last interest payment.

2. State-Owned Enterprise Bonds (SOE Bonds)

State-owned enterprise bonds have a maturity period of one year or longer issued by state-owned enterprise (an enterprise in which the state holds for more than 50% of total capital) seeking funds for the state enterprise’s projects.

State-owned enterprise (SOE) bonds can be divided into two types: guaranteed and non-guaranteed by the Ministry of finance (MOF). For both types of SOE bonds, the MOF selects underwriting institutions by auction. An institution offering the lowest total costs will be selected as the underwriter of the SOE bonds.

Interest payments of SOE bonds are made at regular intervals throughout the life of the bonds, normally twice a year. Upon maturity, the principal of face value will be paid along with the last interest.

3. Bank of Thailand Bonds (BOT Bonds)

Bank of Thailand bonds are debt securities issued by the Bank of Thailand and used primarily for conducting monetary policy, managing liquidity and interest rate in financial market in order to stabilize economic growth and setting benchmark interest rate that helps enhance corporate debt market development.

The first BOT bonds were issued in 1987 having 6-month maturity. After that they had been continually issued until 1997 (except 1989, 1992, 1993 and 1994) with various maturity periods of 1 month, 3 months, 6 months, 1 year and 2 years. In 1997, the Bank of Thailand had been issuing bonds with maturities of 35 days, 42 days and 49 days before it temporarily stopped issuing the bonds since then. Since 2003, the BOT has resumed issuing the BOT bonds until now.

Nowadays, the BOT bonds can be divided into 4 categories as follows:

3.1 Zero Coupon Bonds

The zero coupon bonds, issued by the BOT, are debt securities with maturity period ranging from 3 to 364 days at a discount from face value. Upon maturity the face value will be paid to the holder.

3.2 Fixed Rate Bonds

The fixed rate bonds, issued by the BOT, are debt securities having maturity period longer than 1 year with fixed-rate interest. Interest payments are made at regular intervals throughout the life of the bonds. Upon maturity, the principal of face value will be paid along with the last interest payment.

3.3 Floating Rate Bonds

The floating rate bonds, issued by the BOT, are debt securities having maturity period longer than 1 year, which the bonds bear a floating coupon rate based on BIBOR (Bangkok Interbank Offered Rate). Interest payments are made at regular intervals throughout the life of the bonds with the rate set before the start date of each interest-earning period. Upon maturity, the principal of face value will be paid along with the last interest payment. The first 3-year BOT floating rate bonds were issued in 2007 with the rate based on 6-month BIBOR minus 0.20 paying twice a year and the first interest was paid at a rate of 4.41094% per annum.

3.4 BOT Savings Bonds

The BOT savings bonds are debt securities paying fixed interest in every payment period throughout the life of the bonds at the rate set by the BOT. Upon maturity, the principal of face value will be paid along with the last interest payment. The first BOT savings bonds were issued in 2007 having maturity period of 4 and 7 years. The BOT bonds are issued according to the Bank of Thailand Regulation (SorKorNgor. 12/2550) on the Issuance of Bank of Thailand Bond. <<click for BOT Regulation (in Thai version)>>

The BOT bonds having maturity period of 1 year or less, longer than 1 year as well as the BOT floating rate bonds are sold in primary market by auction according to the Bank of Thailand Regulation (SorKorNgor. 3/2550) on sale method, eligible bidder, tender arrangement, allocation and settlement of the Bank of Thailand Bond. <<click for BOT Notification (in Thai version)>>

BOT savings bonds are sold in primary market to individuals and non-profit institutions via selling agents which are designated for each particular issue. The first BOT savings bonds issued in 2007 were sold through 8 selling agents comprised of Bangkok Bank pcl., Krungthai Bank pcl., Kasikorn Bank pcl., Citibank N.A., Siam Commercial Bank pcl., UOB Bank pcl., Standard Chartered Bank (Thai) pcl., and Hongkong and Shanghai Banking Corporation Ltd.

4. Financial Institutions Development Fund Bonds (FIDF Bonds)

Financial Institutions Development Fund (FIDF) bonds are debt securities issued by the FIDF for the purpose of rehabilitating and developing financial institutions in order to maintain stability in the financial system.

FIDF bonds were first issued in August 1996 to help financial institutions manage liquidity problems during the financial crisis.

At present, there are 2 categories of FIDF bonds as follows:

4.1 FIDF bonds specifically sold to the Bank of Thailand

4.2 FIDF Savings Bonds sold to retail investors by selling agents