Thailand to Secure $10 Billion for Bank Bailout

Reeling after last week’s currency devaluation, Thailand is lining up $10 billion in financing to bail out banks and other lenders and spur its economy--a move that would boost the government’s debt by half.

Meanwhile, currency traders slammed the Philippine peso today on rumors that that country will follow Thailand in devaluing.

The Thai government on Tuesday said it is arranging to sell as much as $5 billion in bonds and borrow up to $5 billion more from foreign banks, said Poosana Premanoch, deputy to Prime Minister Chavalit Yongchaiyudh.

One week after devaluing its currency, the baht, in a bid to boost exports and revive its flagging economy, the government is raising cash for a bailout of troubled finance companies. The money will also be used to breathe life into an economy that is growing at its slowest pace in a decade.

“Their banking system is up the creek, they can’t raise money domestically and their reserves are depleted. They’re just going to have to borrow it,” said Daniel Hemmant, analyst at Guinness Flight Asset Management.

By increasing its foreign debt from $20 billion, however, Thailand runs the risk that its credit rating could be downgraded, increasing borrowing costs for the government and companies.

That could be bad news for Thailand’s many debt-burdened companies, which saw the cost of repaying their roughly $72 billion in foreign-currency-denominated foreign debt leap when the baht was devalued about 16%.

Poosana said the loans could be arranged by next month. He declined to name the banks that will lend to the country. Much of Thailand’s existing foreign-currency debt is held by Japanese banks.

Finance Minister Thanong Bidaya is scheduled to visit Japan next week to arrange a bond sale, as well as meet with officials of Japan’s Ministry of Finance.

The Thai financial system has come under increasing strain in recent years as a speculative real estate boom collapsed, leaving banks and other lenders saddled with a mountain of bad debts.

Now some analysts worry that other Southeast Asian nations also could be forced to devalue their normally stable currencies. The Philippine stock market dropped Tuesday and again early today on rumors of a devaluation plan. (Investor Spotlight, D8.). But the central bank Tuesday denied it planned such a move.

Thailand, at least, should have no trouble borrowing the money it needs. Mexico, which underwent a similar crunch after the devaluation of the peso in 1994, borrowed more than $13 billion from the U.S. Treasury and $17 billion more from the World Bank and the International Monetary Fund.

One year later, Mexico issued $6 billion of five-year notes, using the proceeds to repay sooner than expected much of the U.S. loan.

Thailand, which enjoys a higher credit rating than Mexico, is going straight to the capital markets.

“As long as it’s investment-grade, there will be buyers,” said Emil Nguy, managing director at Income Partners (Asia) Ltd., a bond investment firm.