Public Debt Management

Through Use of Financial

Products and Derivatives
2nd Asian Regional Public Debt Management Forum
Phuket, Thailand
16-18 March, 2011

Deepak Taneja
Treasury Department
Asian Development Bank
 Agenda
 Overview of ADB’s Financial Products for OCR
Borrowers
 LIBOR-Based Loan (LBL)

• Risk Management Features

 Interest Rate Conversion

 Interest Rate Cap and Collar
 Currency Conversion
 Local Currency Loan (LCL)

• Background

• Risk Management Features

 Interest Rate Conversion

 Debt Management Products

2
 Overview: ADB Financial
Products
LIBOR-Based Loan Debt Management
Foreign Currency
Products
 Cost-efficient access to
Liability Management
foreign currencies
 Allow active portfolio
 Long tenors
risk management of
 Wide choice of currency and interest rate
currencies Borrower’s exposure
 Flexible repayment
terms
Debt Management
 Debt management Strategy
features
Risk Mitigation Credit
Local Currency Enhancement
Local Currency Loan Products

 Currency-matched  Addresses specific

funding for local currency risks to lower funding
projects costs or extend tenors
 ADB can swap dollars  Can help to provide
or issue local bonds access to new
whatever is cheaper markets

3
 LIBOR-Based Loan (LBL)
LBL
Main Features – Sovereign Borrowers

Prepayment
And
Cancellation

Currency
Composition

Repayment
Terms

Conversion
Options
LBL Front-end
Fee
(Eliminated)

Local
Currency
Conversion Commitment
Charge

6-month LIBOR /
6-month EURIBOR/ Lending Rebate/
Floating rate Rate Surcharge
benchmark for other
currencies

Effective
Contractual
Spread

* Applicable only to sovereign LBLs that carry a lending spread of 0.60% per annum.
 LBL ADB’s Advantages
By using the interest rate and currency conversion and options
embedded in LBL, borrowers enjoy the following main
advantages:
 ADB’s AAA Credit Rating ensures that the borrower get favorable
pricing and terms with no additional credit spread/premium
charges.
 Since such derivatives features are embedded in the LBL
product, they are considered an integral part of the loan,
therefore, no additional credit approval is required for such
request.
 ADB’s transparent cost-pass through treatment ensures that the
borrower achieve satisfactory terms and pricing and take full
advantages of ADB’s extensive and sound banking networks.
 ADB is not profit-driven but aims to help the borrowers to
achieve their debt management goals using available risk
management features under LBL.
LBL Interest Rate Conversions
 Borrowers may change the interest rate basis of their loan:

 at disbursement,
 at any time following disbursement
 at regular time intervals (Specified Rate Fixing by Period),
or
 When disbursement reaches a threshold amount
(Specified Rate Fixing by Amount)

 For all or part of disbursed balance or remaining life

 After conversion new lending rates would reflect cost of

corresponding hedge transaction
LBL LBL Net Lending Rate Computation
Before Conversion
Example: USD
Interest period: 15 Jan 11 ̶ 15 Jul 11
6-month LIBOR ( 13 Jan 2011) 0.45656%
Less: Rebate on funding cost margin -0.23%
Effective contractual spread 0.30%
Net lending rate 0.52656%
After Conversion to Fixed Interest rate
Example: USD
Interest period: 15 Jan 11 ̶ 15 Jul 11
“Fixed” interest Rate based on 10-year fixed 3.40%
swap rate ( as of 13 Jan 2011)
Less: Rebate on funding cost margin -0.23%
Effective contractual spread 0.30%
Net lending
7 rate 3.47%
LBL Interest Rate Cap and Collar
Example: USD LIBOR
Interest Rate
Cap (10 years)
 Cap rate: 5%

Premium: $ 11.7 M ( 5.85 %)*

Cap
5.00%
Interest rate boundary
Zero Cost Collar (10 years)
 Cap rate: 5% 2.48%
Floor
 Floor Rate: 2.48%
 Premium: $0*

1 5 12
*Notional Amount $200M; Loan 100% Maturity
capped, Transaction fee 1/16%
8
LBL Currency Conversions

 The denomination of the original loan may be converted to

Euro, JPY, USD, GBP, AUD, NZD or any currency that ADB
can successfully intermediate.

 Borrowers may change the currency of their loan:

for all or part of the undisbursed and/or disbursed balance,
and
For full or partial maturity

 The terms of the currency conversion will reflect the cost of

ADB’s currency hedging transaction, including the exchange
rate actually used in the transaction.

 Borrower may also choose to convert the original loan currency

to its local currency provided:
 Loan is fully disbursed and outstanding
 Subject to ADB’s ability to enter into appropriate hedging
arrangements in the local financial market
 Considerations during loan conversion
LBL
decision-making process

 Asset-Liability Management

 Target / Benchmark portfolio

 Currency and Interest rate composition

 Capacity and management of internal operations

(ex: process and procedures, accounting, valuation, accountability, system, staff)

 Market movements (ex: timing, current rates, yield curve, volatility, opportunity
gain/loss or risk based decision, scenario analysis)

10
LBL Sample Conversions and Local Currency Financing
LCL Background
 LBLs are available in US Dollars, Yen, Euro and other major currencies.

 Certain borrowers had requested ADB to consider adding a local

currency loan product to increase borrowers’ choice and flexibility

 In 2003, ADB approved its first LCL to nonsovereign borrowers. In

2005, LCLs are also made available to sovereign borrowers.

 ADB aims to help reduce currency mismatches in its developing

member countries (DMCs) by extending LCLs in close cooperation with
the local financial sector to complement and catalyze local financial
resources.

 LCL is currently available in India, Indonesia, Kazakhstan, People’s

Republic of China and Philippines

12
 Local Currency Loan (LCL)
LCL
Main Features
Pool-based Back-to-back
Funding Funding

Local
Currency
Funding
Options

Lending
LCL
Interest rate Conversion
Conversion Options Rate

Fix/Unfix Cost Effective

Rate Base contractual
Rate spread

Front End
Fee Pool-
Back-to-
based
back
Fundin
Commitment Funding
g
Charge
Local ADB’s cost
floating-rate of a funding
benchmark transaction,
including
related swap
Rebate or
costs
Surcharge
LCL Interest Rate Conversions
 Borrowers may request an interest rate conversion:
 from Floating to Fixed rate, or vice-versa, and
 for all or part of disbursed balance or remaining life

 Subject to relevant swap market opportunities available

to ADB in the local swap market.

 Upon conversion, the interest rate would be determined

on the basis of the cost of the relevant hedge swap
transaction.
Debt Management
Product Background

 Debt management products include interest rate swaps, cross

currency swaps, and local currency swaps.

 Until recently, ADB only offered such products in conjunction

with its own loans.

 Sovereigns requested ADB to intermediate such swaps also for

their third-party liabilities from commercial financial
institutions, outstanding bond issues or bilateral loans (e.g.
JBIC)

 ADB’s Board approved this new product for sovereign clients

(including sovereign-guaranteed clients) in November 2006

 ADB’s debt management products are only available in

conjunction with hedging requests linked to actual liabilities to
prevent speculative trades.

15
Debt Management
Product Benefits for the DMCs
Bypass the minimum credit rating requirement for the comprehensive access of the
debt management products.
Sovereign Credit Ratings Table 　 (as of 18 February 2011 )

Country Long-Term Foreign Country Long-Term Foreign

Currency Rating Currency Rating

P.R. China AA- Viet Nam BB-

Malaysia A- Cook Islands BB-

Papua New Guinea B+ Indonesia BB

Fiji B- Philippines BB
Mongolia BB- Kazakhstan BBB
Pakistan B- India BBB-
Sri Lanka B+ Thailand BBB+
Turkmenistan1 WR Georgia B+ 16
Source: Bloomberg; All ratings by S&P, except where indicated 1by Moody’s:
Armenia1 Ba2 Azerbaijan BB+
Debt Management
Product Benefits for the DMCs
 More favorable transaction pricing on the swaps, as well as
longer maturity terms

 ADB’s transaction execution experience, knowledge of

derivatives pricing methods, as well as its extensive
network of major financial

 May also save DMC clients valuable credit lines with

nonsovereign institutions.

17
Debt Management When to Use ADB Debt
Product
Products?
 Government may have a target sovereign benchmark
with respect to currencies and mix of floating/fixed rates

 ADB debt products can help to rebalance the existing

portfolio to move closer to sovereign’s target portfolio

18
Debt Management Required Actions for using debt
Product management products
 The client must submit formal request for such debt
management products with sound justification and rationale.

 The client must enter into an ISDA Master Agreement with

ADB.

 One of the critical provisions in the ISDA schedule is a cross-

default clause linking the client’s obligations under the debt
management products and all outstanding loans from ADB.

19
 Summary
 LIBOR-Based Loan (LBL) is a market-based loan
product that allows ADB’s efficient intermediation on
the finest possible terms, provides transparent and
market-based pricing.

 LBL provides flexible embedded options for managing

interest and currency risk.

 Local currency loan product enables ADB borrowers

avoid currency mismatches particularly to borrowers
with no foreign currency revenues.

 ADB is offering sovereign clients debt management

products for their third-party liabilities.

20
 Thank You.

21
 Appendix

 LIBOR-Based Loan (LBL) Main Features: Sovereign

Borrowers
 Local Currency Loan (LCL) Main Features : Sovereign
Borrowers
 LBL Conversion Transaction Fees
 Debt Management Products pricing
 Information on USD interest rate

22
LBL
LIBOR-Based Loan (LBL)
Main Features – Sovereign Borrowers
USD, JPY, Euro, and other
LBL Negotiated Currency currencies in which ADB can
after 1 July 2010 efficiently intermediate
till 30 June 2011 Normally 5 - 25 years depending on
Item Project/Program Maturity
Loan Type
A. Interest Normally 3 - 5 Years depending on
Cost Basis Grace Period
Loan Type
(Adjusted every 6 months 6-Month
Fixed at Loan Signing
on every Interest Payment LIBOR
- Annuity
Date)
- Straight - line
Funding
Rebate/Surcharge Amortization - Custom - tailored
Cost
(Adjusted every 6 months - Bullet
Under/Over
as calculated by ADB)
LIBOR Linked to Actual Disbursements
Effective Contractual - Straight - line
Spread * 0.30% Interest Rate Conversion
B. Front-End Fee (bps) 0 From floating to fixed or vice versa
C. Commitment Charge
(Applied on full amount 0.15% Interest Rate Cap and Collar
Conversion
of undisbursed balance)
Options
Currency Conversion
For all or part of both undisbursed
and disbursed loan amounts.

* Effective Contractual Spread applicable from 1

July 2011 onwards is 0.40 %

Loan charges are reviewed periodically by Board of

Directors.
 Local Currency Loan (LCL)
LCL
Main Features – Sovereign Borrowers
Ite m S o v e re ig n N o n S o v e re i g n Currency Selected Local Currencies
Normally 5 - 25 years depending on
A . In t e re s t Maturity
Loan Type
C o s t B a s is Normally 3 - 5 Years depending on
Grace Period
(A d ju s t e d e ve ry 6 m o n th s 6 -M o n th 6 -M o n t h Loan Type
o n e ve ry In t e re s t P a y m e n t L IB O R L IB O R Fixed at Loan Signing
- Annuity
D a te )
- Straight - line
F u n d in g C o s t Amortization - Custom - tailored
R e b a t e / S u rc h a rg e U n d e r/ O ve r L IB O R (fo r - Bullet
(A d ju s t e d e ve ry 6 m o n thSso ve re ig n L o a n s None Linked to Actual Disbursements
a s c a lc u la t e d b y A D Bfu) n d e d u n d e r th e p o o l- - Straight - line
Interest Rate Conversion
b a s e d a p p ro a c h )
From floating to fixed or vice versa
E ffe c tive C o n t ra c t u a l Conversion
0.30% * L o a n -s p e c ific Options
S p re a d
B . F ro n t -E n d F e e (b p s ) 0 L o a n -s p e c ific
C . C o m m itm e n t C h a rg e
(A p p lie d o n fu ll a m o u n t 0 . 1 5 % L o a n -s p e c ific
o f u n d is b u rs e d b a la n c e )

* Effective Contractual Spread applicable from 1

July 2011 onwards is 0.40 %

Loan charges are reviewed periodically by Board of Directors.

 LBL Conversion Transaction fees

Currency Conversions
 Undisbursed loan amounts
0.0625%
 Disbursed loan amount
0.125%
 Local Currency conversion
0.02% p.a.

Interest Rate Conversions

 Initial rate fixings for up to the full maturity
of the loan for amounts up to the
outstanding loan amount No
charge
 Additional rate fixing/unfixing
0.0625%

Interest Rate Caps and Collars

0.0625%
25
 Debt Management Products Pricing

Transaction Fee Schedule

(expressed as percentage per annum on the principal amount
being hedged)

26
 USD 6 Month LIBOR : 1991-2011

27
 USD 10 year Swap FIX Rate :1988-2011

28
 Historical Yield Spread : USD 6 month LIBOR vs USD 10
year Swap FIX rate

29
Bernard Lim
HSBC
Derivatives Usage in Financing
Activities
 Issue in floating rate and interest rate
Finding Cost swap
Effective Funding  Issue in foreign currency and currency
Source swap into local currency
 Issue callable liability and monetise the
optionality
 Pre-issuance hedge
• e.g., Treasury Lock
Hedging  Post-issuance hedge
• Currency swap, currency options

Cashflow  Swapping the timing of cashflows

Management  Alter liability currency mix

 Incorporating market views to achieve

cost reduction
Cost Reduction • FX view
• Interest rate view
• Commodity price view
 • to tap opportunistic low cost of funding from investor
Finding cost effective reverse inquiry through private placement or public
financing - bond issuance
Derivatives for
Immunization • Derivatives can be used to eliminate the unwanted risk
of the private placement structure, and only retain the
wanted funding in the desired currency and interest rate
exposure.

• Issuers can lock in the desired market rates in the

Hedging – Pre-issuance current market for coming planned bond issuance. For
hedge example, locking in the rate for a planned USD fixed rate
bond issuance in late Q2.

• Sovereign/ public entities can make use of swaps to

Cashflow management: adjust its currency exposure of its liability profile to
Duration/ Currency Mix balance with the currency exposure on the asset side
Adjustment
• They can also make use of derivatives to extend duration
and to develop the local currency market.
 1. Finding Cost
Effectiveness Package
 Investors’ Appetite

Kexim Funding currency

KRW
12%
The Americas * Asia *

Emerging
• Brazil • Japan
39%
• Mexico • Australia
KRW
G4 • China
Emerging
• Thailand
G4 • Indonesia
49%
• India
• Singapore

• Due to different investors appetite in different capital markets, very often we see sovereign/public
entities able to raise cheaper/longer money in developed foreign capital markets (US, UK, Japan or
Europe) through bond issuance, or increasingly through private placements in emerging markets.
However, currency mismatch could produce a currency risk.

• Currency swaps could be used in this case to swap the bond issuance currency into the functional
currency of the company.
 Private Placement - Issuer Motivation
Pros and Cons
• Pros
– Many issuers consider MTNs/private placements to be a tactical
vehicle for cheap, cost efficient funding (i.e., expensive for investors)
– An alternative to the public markets to provide investor
diversification, maturity smoothing (avoiding concentrated
redemptions which bring refinancing risk)
– Access to non-core markets
– Retail
– Local currencies
– An opportunity to fund privately without impacting secondary
spreads and/or any disclosure of their cost of funding to the market
• Cons
– Transaction cost and time to market are negligible if the issuer has a
documentation shelf (programme) in place
– Issues may be vanilla or highly structured. This means that active
issuers need to have the infrastructure to handle ancilliary concerns
relating to the bond and swap cash flows (e.g., accounting, tax etc.)
– Ticket size usually smaller than benchmark size
 Investor Motivation
Pros and Cons
• Pros
– A custom product which is designed to match an investor’s …
– Maturity, Structure, other investment criteria including ALM objectives
– Currency (when issuers only issue ‘benchmarks’ in core currencies)
– Get access to a credit when you choose rather than waiting for the issuer’s
strategic funding objectives to be fulfilled
– Opportunity to gain exposure to structured products in a securitised form
(including warrants representing a securitised option)
– Employ simple strategies to boost yield and enhance returns
– Fixed callables vs. Fixed Bullets
– Forward starting bonds benefitting from upward sloping yield curve
– Opportunity to fill in holes in asset profile
• Cons
– Credit spreads may be tighter than more liquid, public deals
– Generally less liquid than public, syndicated issues
– Transactions are not delivered on a platter and require more effort from sales and
the investor
 Asian Currency Issuance

Trend for increasing weight of Asian

All International Bonds (Asian + non-

LCY bonds in global issuance

Asian)
2007 2008 2009 2010
No. of deals 10,030 8,690 10,516 8,738

Eq USD volume 3,064 3,157 4,248 3,069

(billion)
Asian onshore/ all 3.59% 3.71% 3.32% 4.63%
bonds international
%
Country % of Asian LCY bonds

Singapore 4% 6% 3% 9%
Malaysia 17% 14% 10% 9%

Trend for increasing weight in

Asian LCY Bonds 2010
Hong Kong 4% 4% 5% 6%
Korea 38% 30% 39% 30% Singapore
Malaysia
Taipei,China 4% 12% 5% 8% Hong Kong
India

Korea
India 19% 20% 22% 27% Taiwan
India
Thailand 8% 11% 10% 7% Thailand
Indonesia
Indonesia 3% 1% 3% 3% Vietnam
Philippines
Vietnam 1% 0% 0% 0%
Philippines 1% 2% 2% 1%
 Use of Swaps - Immunization

Is s u e s b o n d in A s ia n U S D f ix e d/ f lo atin g ra te
In ve s to r C u rre n c y Is s u e r Bank
L oc a l c u rre n c y ra te

Key Features
• Issuer issues in the currency investor want

• Issuer swaps back into the currency he would like to issue in

2. Hedging
 Pre-Issuance Hedge
Considerations
HSBC is pleased to • The issuance cost on a USD bond can be viewed as a
provide our combination of a generic benchmark rate plus the specific
thoughts on pre- issuer credit spread. The benchmark rate for a USD bond is
issuance hedging typically the US government Treasury rate, or the mid
considerations in interest rate swap (“IRS”) rate for the relevant maturity
relation to the
inaugural USD
• Pre-issuance hedging can readily be done on the benchmark
sovereign bond
issue rate as market liquidity usually is very available, and the
tenor of the hedging instrument can match with the tenor of
the bond issue
− Pre-issuance hedging on the benchmark rate can be
accomplished via the Treasury curve or the USD LIBOR swap
curve
− Pre-issuance hedging is FAS 133 compliant as hedge of a
Forecasted Transaction
− Both rate locks and option products are available

• Pre-issuance hedging on the credit spread however is

relatively more difficult, as secondary market liquidity may
not be adequate to meet with the issuance size. Regular
issuers may hedge using their existing bonds trading in the

A Treasury Lock is a cash settled
transaction based on a specified
Notional amount
There is no need to actually
exchange securities
Advantages:
• No daily mark-to-market
• No daily maintenance margin
• No daily accounting entries
• No on-going repo transactions
• FAS 133 compliant as hedge of
forecasted transaction
• Creates contingent credit
exposure
Disadvantages:
• Sacrifice the opportunity of a
lower benchmark rate if rate
drops
Treasury Lock
• A Treasury Lock (“T-lock”) agreement allows the Issuer to “lock-
in” the yield of a specified Treasury security (the “Lock Rate”)
for settlement on a specified date in the future
• The Issuer effectively hedges the cost of issuance:
− By doing a Treasury Lock, the Issuer either makes money from the
Lock contract when the Treasury yield rises, or and loses money when
the Treasury yield drops
− The Issuer’s bond coupon will increase when the Treasury yield rises,
but the gain from the Treasury Lock contract will offset the increment
in the bond coupon (and vice versa)
• Settlement of a Treasury Lock
− If the actual Treasury yield on the settlement date is above the Lock
Rate, then the Issuer is credited for the present value of the difference
in rates. This will offset the impact of the higher rate on the actual
bond issue
− If the actual Treasury yield is below the Lock Rate, then the Issuer is
debited for the present value of the difference in rates. This will offset
the
Indicative benefit
T-Lock of(as
Pricing theoflower rate
14 March on the actual bond issue
2011)
• T-Locks can be arranged for a specific Treasury issue or for the
“then on-the-run” Treasury
Settlement Date

A Swap Lock is an interest
rate swap (“IRS”)
transaction which targets to
lock in the benchmark rate
in pricing a bond issue
Swap Lock
• A Swap Lock is a customised agreement that fixes the yield on a
specified swap rate for a specific period (the “Lock Rate”). The
buyer of the swap lock is protected from a rise in the yield of the
underlying reference swap rate during the lock period

• The rate to be received by the Issuer in the Swap Lock should equal
Advantages:
to the benchmark rate to be paid in the bond issue. The effective
• Eliminate swap rate risk all-in rate for the bond issue, as a result of the swap lock, will be
• No upfront cost equal to the Lock Rate plus the Credit Spread
• Can be early terminated
easily • Terms of a Swap Lock:
• FAS 133 compliant as hedge − Lock period: [from now to the target bond pricing date]
of forecasted transaction − Tenor: [equal to the bond tenor]
• Due to better liquidity, the − Issuer pays a fixed rate
swap lock offers more
competitive pricing in − Issuer receives a rate to be determined at the end of the Lock period,
hedging the benchmark rate equal to the prevailing Mid Swap Rate for the tenor
than the − The settlement can be upfront by discounting the differential between the
T-lock above 2 rates. It can also be settled over time, as the differential will be
settled every 6 months up until the maturity of the transaction
Disadvantages: Indicative Swap Lock Pricing (as of 14 March 2011)

• Sacrifice the opportunity of

a lower benchmark rate if
rate drops

Settlement Date
3. Cashflow
Management
 Cashflow Management
Payment timing –
Payment timing - investor issuer desire
desire
Investor Issuer Bank
Payment timing -
investor desire

Key Features
• Issuer make payments tailored to meet investors demand – e.g., bullet
bond
• Issuer swaps back to match the cashflow it expects

• OR
• Issuer to lock in the rate in the prevailing market
 Capitalised Interest
• Projects may not have cashflow to pay for interest at the
construction period/ early stage of operation period

• Swaps may be used to facilitate the payment timing

USD 1-month LIBOR

March April May June July August September

USD 3-month
LIBOR
Fixed Rate Collection Account
• Projects which collect cash daily (more frequently), and loan principal repayment annually
(less frequently) may use this

Cash Collection

March April May June July August September

Loan/Bond Repayment
 Example

Dhanarak Asset Development THB10.3bn

Securitisation Bond

Best Domestic Securitisation

Best Local Currency Bond
 Dhanarak Asset Development THB10.3bn
Securitisation Bonds
Description
• Dhanarak Asset Development (D AD), a state enterprise 99% owned b
Ministry of Finance (MOF), raised THB10.3bn via the issuance of four
series of securitisation bonds(Bonds) in Nov 2005:
– Series 1 :THB1.5bn AAA bond (maturity Nov 2012)
– Series 2 :THB 2.0bn AAA bond (maturity Nov 2015)
Dhanarak Asset Development – Series 3 :THB1.5bn AAA bond (maturity Nov 2020)
– Series 4 :THB 2.0bn AAA bond (maturity Nov 2025)

[Securitisation Bonds] • Proceeds used to partially finance the development and construction
484,000 sq Bangkok Government Office Centre Project on Chawattan
THB10.3bn Road in Bangkok, to be leased by the Treasury DepartmentTD)( and
housing 28 government agencies (T he Project)
Joint Principal Advisors
Joint Bookrunner, Joint Lead Arranger and • Payments under the Bonds are collateralised by a 30-Year lease with t
Joint Lead Manager Treasury Department(TD)
Transaction Highlights
November 2005
• THB10.3bn was raised by DAD, part of total THB24bn Programme si
• Largest securitisation deal in Thailand to date (by issue volume)
[XXX] • 1st securitisation to be publicly offered to retail investors in Thailand
Date • 1st bond issue in Thailand to be simultaneously offered to retail and
institutional investors
[Comment]
• 1st future flow securitisation transaction in Thailand to date
• 1st infrastructure-related securitisation transaction in Thailand to date
• 1st real estate related securitisation transaction in Thailand to date
• 1st transaction rated by both Fitch and TRIS
 Dhanarak Asset Development THB10.3bn
Securitisation Bonds
Transaction Highlights

Construction Period (2005-2008)

 TD enters into a 30 year lease agreement and 5 Transaction Structure (Closing)

year furniture procurement agreement
(collectively, Office Lease) with DAD, with lease
payments commencing in July 2008
 DAD assigns its rights under the Office Lease to Treasury Department (TD)
a special-purpose vehicle (DAD SPV)
established by DAD to fund the construction of (1) TD leases of f ice space
to MOF under 30-year
the Project, for the following consideration lease (Office Lease)
• Proceeds under Bonds issued by DAD SPV
• Subordinated Promissory Notes DAD Co. Ltd
 DAD SPV issues THB24 billion of bonds over (5) Proceeds f rom
2005, 2006, 2007, collateralised by payments Securitisation Bonds +
Subordinated Promissory Note
under the Office Lease
 First Series of Bonds of THB10.3bn issued in DAD SPV
Nov 2005
(3) Issues Securitisation (4) Net Proceeds f rom
 DAD SPV deposits cash into General Reserve to Bonds to Investors Securitisation Bonds
fund payment of interest expenses and third
Investors
party expenses over remainder of the
Construction Period
 Net Proceeds from bonds delivered to DAD to
complete construction of the Project
 Dhanarak Asset Development THB9.5bn
Securitisation Bond
Transaction Highlights
Ongoing Cash Flow (2008-2038)
• Annual payments under the Office Lease (commencing in July 2008) deposited
into following reserve accounts (Reserves) :
(i) General Reserve – to fund annual payment of interest and third party
expenses
(ii) Liquidity Reserve (if required) – to fund 3 months of interest and third
party expenses in the event of any delay in payments under the Office
Lease
(iii) Principal Reserve – cash accumulation account to fund principal
repayment of bonds at maturity dates (Nov 2012, 2015, 2020, 2025)
• Net cash flow after deposit into Reserves is passed back to DAD and is used to
Ongoing Cashflow
amortise subordinated promissory notes
Treasury Department (T D) (1) TD makes lease DAD Co. Ltd
payment under Office
Lease to DAD SPV directly
(4) Net cash f low af ter
(2) Cash f low deposited into reserve payment into Reserves
accounts to f und expenses, interest and
principal payment
DAD SPV

Collection Accounts
(3) Interest and principal on
Reserves the Securitisation Bonds
Investors
 Dhanarak Asset Development THB9.5bn
Securitisation Bond
Achieved All Key Objectives of the Government of Thailand(GOT):

Project  DAD raised the funds necessary for the preliminary phase of construction of th
Implementation 484,000 sq Bangkok Government Center within the MOF’s timeframe

Cost Effective  Secured AAA ratings by both Fitch and TRIS

Funding  All four tranches were priced at the [lower end] of the price guidance

 DAD entered into long-term interest rate swap with HSBC prior to Closing Dat
Mitigation of in order to lock-in a fixed interest income on cash flow accumulating in Princip
Interest Rate Risk Reserve over time, to fund principal repayment on THB10.3bn bonds, in Nov
2012, 2015, 2020, 2025

Broad Distribution  First ever Thai securitisation offered to retail investors

Development of  Created a benchmark yield curve for long-term quasi-government bond

Thailand’s Capital issuance
Market  Offered investors a significant yield pick -up over Government issues
Q&
A