Thailand looks likely to fall far short of target on a $2.4 billion bond to fund rice subsidies, risking the anger of farmers as protests against the government escalate.
The government needs the money to appease rice growers, a traditional bastion of support who have threatened to join the protests as they have not been paid for their grain since the subsidy scheme was renewed at the start of October.
Anti-government demonstrators forced their way into Thailand's finance and foreign ministries on Monday in an escalating bid to topple Prime Minister Yingluck Shinawatra.
The state Bank of Agriculture and Agricultural Cooperatives (BAAC) raised only 37 billion baht of 75 billion baht after book-building closed, two sources familiar with the matter said on Monday. While the subscription period is open till Nov. 28, the bank is expected to proceed with a coupon of 3.53 percent.
"We can see the demand for the issue is weak today. It may be because of the political issue," said a fund manager with a domestic asset management firm. "It was only 50 percent covered. Maybe in two weeks, when the situation is not like today, they can reopen and try again."
Investors had expressed concern over the cost of the rice scheme and cited 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 specified the government will pay the principal and the interest, unlike BAAC's other outstanding state guaranteed bonds, IFR said.
"I didn't invest in it. It's not interesting and the usage of the funds is not so good. It's more to do with supporting the rice scheme than the bank's business expansions," said a fund manager at a domestic bank.
Thailand's finance ministry said last week it would borrow from banks or allow them to bid on the unsold portion if institutional interest fell short.
BAAC, which funds the rice scheme, has sold about 123 billion baht ($3.9 billion) of debt this year but had to cancel three auctions last month.
Officials at the Public Debt Management Office were not immediately available for comment.
The three-year bond, due November 2016, will be used to pay for the main harvest while a second smaller issue will be needed for the subsequent crop.
"I've talked to other fund managers and they also think although the bond is guaranteed by the government, they don't want to support the rice buying scheme because it's not transparent," said a bond dealer at a domestic bank speaking ahead of the launch.
Thailand buys rice at 15,000 baht a tonne, well above market rates. The subsidies are popular among farmers whose support swept Shinawatra to power in 2011 in a landslide election.
They are the cornerstone of economic policies aimed at lifting rural incomes to stimulate consumption in the mould of her brother, ousted prime minister Thaksin Shinawatra. He funneled money into villages through cheap loans and a debt moratorium for farmers while in power from 2001 to 2006, creating a knock-on effect on the whole economy. ($1=31.8 baht)