The RSIS Centre for Non-Traditional Security (NTS) Studies' Blog


ASEAN Bond Market Initiative: A Quick Report on the Credit Guarantee Investment Fund

Posted in ASEAN-Canada Partnership by NTSblog on June 14, 2013
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The ASEAN Bond Initiative (ABMI), like the Chiang Mai Initiative Multilateralisation, was formed in the context of the aftermath of the Asian crisis.  The mechanism was established in 2003 to promote long-term investment and financial stability by helping member countries tap into regional saving pools, while avoiding currency and maturity mismatches, as seen during the 1997 crisis.  These objectives were to be fulfilled through a multipronged strategy which addresses various issues, such as supply and demand of local bonds, cross-border transaction and settlement, and credit rating system.

The 2008 global crisis accelerated the ABMI dynamic.  Being aware of the fragility and interconnection of the global economy, leaders from ASEAN+3 countries acknowledged the pressing importance of building sustainable economic growth in the region.  As a result, a New AMBI Roadmap was adopted in 2008 to give the mechanism clearer objectives, including promoting the issuance of local currency-denominated bonds and improving the necessary infrastructure for the bond markets.   In 2012, these goals were streamlined and concretized by the New Roadmap+ to achieve more tangible outcomes and address with relevant issues in the global finance.  At the 10th anniversary in 2013, the ABMI is at its vibrant stage and has contributed to the steady development of the regional bond market.

Among the various programs under the ABMI, the Credit Guarantee Investment Fund (CGIF) stands out as one that received close attention from member governments.  Established in 2010 as part of the New Roadmap, the CGIF is to provide guarantees on corporate bonds issued in regional markets.  The pool of US$700 million-paid-up-capital available to the fund, contributed by ASEAN+3 and the ADB, speaks well for the strong commitment given to this program.  Most recently in April 2013, the CGIF provided its first guarantee to the issuance of Thai-baht bonds at the value of Bt2.8 billion by Noble Group, a Singaporean–based commodities trading corporation.  This guarantee would allow Noble Group to diversify its borrowing and tap into the growing Thai bond market, while creating investment opportunities for local investors in Thailand.

Looking more closely at this development, the CGIF, and the ABMI in general, do not devoid of challenges.  First, regional bond market still have to compete with bank lending and local bond market as sources of corporate borrowing.  The case of Thai Union Frozen, whose deal with the CGIF in 2012 did not materialize reportedly due to the higher costs in issuing bonds in the Singaporean market compared to borrowing at home, illustrates this point.  This phenomenon reflects a fundamental problem in promoting regional bond market in a largely bank-based financial environment and existing advantages of big local companies in accessing domestic funds.  Second, the fund’s financial and organizational capacity can pose certain limitation to its performance.  Although the size of US$700 million is not insignificant, with the average deal size of US$75-100 million[1], the CGIF could only guarantee a limited number of companies and could hardly afford a default.  This concern is seen connected to its careful selection criteria that would require competent staff and a time-consuming approval process.  But this is a work in progress.  So far the CGIF is working toward building its organizational capacity and expanding its investment portfolio.  How it overcomes these challenges and contributes to regional financial integration should be followed closely by future research.


[1] The Thai Union Frozen deal was about US$ 75 million and the Noble Group deal was approximately US$ 92 million (calculating from the rate of Bht32 to US$1).

This blog post has been written by Supanai Sookmark. Supanai is an instructor at Carleton University in Ottawa and a Junior Fellow for 2012 under the ASEAN-Canada Research Partnership. For more information on the ASEAN-Canada Research Partnership, please click here.

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