What are Bonds?

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	What are Bonds?

		What are bonds and why should I invest in them?
		Bonds issued in Thailand can be divided into two major components: government and corporate debt securities.

The market is dominated by government debt securities, which currently account for approximately 85% of the total market.


	Government Debt Securities 1) Government bonds
	Government bonds are medium to long-term debt instruments issued by the Ministry of Finance. They consist of three types; investment bonds (IB) loan bonds (LB) and saving bonds (SB). IB have not been issued since 1991 and there are only a few issues remaining. LB capture the bulk of the market as they are used to finance the budget deficit. SB are issued to provide households with an alternative source of savings.


	2) State owned enterprise bonds (SOE)
	These are medium to long-term debt instruments issued by state owned enterprises. Most of them are guaranteed by the Ministry of Finance (MOF). The interest rate for government debt securities depends on the current market conditions, the level of risk and period to maturity. If an issue does not have a government guarantee it will normally carry a higher interest rate. To see current prices click here

	Corporate Debt Securities
	Corporate Debentures tend to be extremely popular and often sell out within a few days. Recent bonds underwritten by Bangkok Bank have been Khanom Electricity Generating Public Company (KEGCO), Siam Cement (SCC), Charoen Pokphand (CPF) and Vinythai (VNT). Since it is actually the company, not the bank that is borrowing the money through the bond markets, the security of the loan is reliant on the strength of the company. It is not guaranteed by either the bank or the government. For some investors, Corporate Debentures have distinctive advantages over government bonds because the interest rate tends to be higher, due to the higher risk. The minimum investment for corporate debentures for an individual, depends on whether it is a public offering (P/O) or private placement (P/P) For a public offering, the minimum investment can be as little as one unit (1,000 or 10,000 Baht). For a private placement the minimum investment is 10 million Baht. The corporate sector began to issue bonds in 1992 after the enactment of the Security and Exchange Commission (SEC) Act which eased the criteria for the issuance of corporate debentures.

	Types of bond issues
	There are a number of ways of structuring corporate debenture issues. Some examples include: straight, floating rate notes (FRN), amortizing and convertible. The issuance can be made either through public offerings (P/O) or private placements (P/P). For public offerings (P/O) the issuer must meet SEC criteria and have the SEC's approval before making the offering. The issuing process for private placements is more straightforward. P/P issues can be offered to up to 35 investors or to the 17 types of institutional investors as specified by the SEC. Click here for details. Both types of offerings require a credit rating unless an exemption has been granted for issues which are raising less than 100 million Baht and which are limited to fewer than 10 investors. If you want to invest in bonds you should ask yourself the question - "how much risk am I prepared to take with my money?" If the answer is very little - then you should invest in government bonds. If you are prepared to take a moderate risk in favor of the possibility of higher returns then corporate debentures with top ratings will be more attractive to you.

	Disclaimer
	Although financial instruments offer the prospect of higher returns they are not a bank deposit and bears some risks. You may get a return which is greater or lesser than your initial investment.