JCR puts Thailand on credit alert

The Japan Credit Rating Agency (JCR) has become the first ratings agency to downgrade Thailand's credit outlook to "negative" from "stable".

The JCR warned the political turmoil could cripple the economic recovery, while a protracted crisis amid the current account deficit could weaken the country's foreign currency liquidity position.

It has become more likely that implementation of economic measures including infrastructure development needed for economic growth will be delayed, the JCR said.

"It will keep watching future development of the political crisis with its possible impact on the economy and take appropriate action on its rating as needed if the mentioned concern should become a reality," it said.

Since anti-government protesters took to the streets last October, ratings agencies including Moody's Investors Service and Fitch Ratings have warned the political turmoil going into the second half could trigger negative credit action, although they consider that Thailand at the moment could still withstand the political impact.

The JCR is not the first organisation to sound an alarm about Thailand's current account deficit. Luxmon Attapich, the Asian Development Bank's senior economist for Thailand, recently said twin deficits in the current account and fiscal budget warranted monitoring, as the country's external factors would deteriorate if the deficits continued for several years despite high foreign reserves.

Moody's also recently said the Constitutional Court's ruling to void the Feb 2 general election was a credit negative, as the political uncertainty could drag on.

Thailand has run a small current account deficit since 2012, with foreign reserves at US$168 million as of March 21.

The JCR said Thailand's current account deficit this year is likely to decline in line with an export pickup, given the global economic recovery, particularly in developed countries.

However, approval for foreign direct investment has declined drastically due to an absence of a new board at the Board of Investment (BoI), while the caretaker government fears violating constitutional law by granting approvals. The Election Commission recently approved the appointment of the BoI's new board.

"Given the Thai government's comparatively sound fiscal position, the stability of the banking system and comparatively strong external balance, it is less likely that the country will fall into a financial crisis or a foreign currency liquidity crisis," the JCR said.

Meanwhile, Siam Commercial Bank (SCB) has announced that its US$750-million senior unsecured notes due in 2019 have received an overwhelming welcome from the public by being 6.4 times oversubscribed. The bank has set a coupon rate for the notes at 3.5%. They are issued by SCB’s Cayman Islands branch and are rated A3 by Moody's, BBB+ by S&P and BBB+ by Fitch.

SCB will use the net proceeds to fund its branches at home and abroad and for general purposes.

They are Thailand's first foreign-denominated debentures issued this year.

"We are pleased to see the overwhelming demand for our transaction. Despite the current political backdrop in Thailand, the demand for and success of this transaction attests to the continued strong confidence of the global financial markets in SCB credit and, above all, in Thailand. We're pleased to have reopened the international bond markets for Thai borrowers," executive committee chairman Vichit Suraphongchai said.

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