Thailand Offers Generous Terms on Rice Bond

Thailand launched a 75 billion baht (US$2.36 billion) bond on Monday that it needs to fund rice subsidies, offering generous terms as it tries to avoid adding fuel to protests in Bangkok.

The government needs the money to pay rice growers, a traditional bastion of support that is at risk as farmers have not been paid for their grain since the subsidy scheme was renewed at the start of October.

About 1,000 anti-government demonstrators forced their way into Thailand's Finance Ministry on Monday and protest leaders called for the occupation of government buildings in an escalating bid to topple Prime Minister Yingluck Shinawatra.

The state Bank of Agriculture and Agricultural Cooperatives (BAAC) will use the bond, its biggest ever, to pay farmers for rice bought at above market prices in a subsidy scheme that has cost the government 680 billion baht so far.

But it was not clear whether it would be able to sell the entire amount on concerns over the cost of the rice scheme and given the political uncertainty.

Underwriters set early price guidance of 31 to 39 basis points over comparable Thai government bonds, according to IFR Markets, a unit of Thomson Reuters.

To attract investors the issue also specifies the government will pay the principal and the interest, unlike BAAC's other outstanding state guaranteed bonds, IFR said.

“I'm not sure if the government can successfully issue this, there's a lot of political concern and the issue size is quite big,” said a fund manager with the domestic units of an international asset management firm.

“Normally, 40 basis points over government would be okay but with the situation now?”

Thailand's finance ministry said last week it would borrow from banks or allow them to...