The government of Thailand on Tuesday kicked off the retail bookbuild to raise as much as Bt44.7 billion ($1.4 billion) by selling part of its concession rights in two major expressways. If successful, it could serve as a template for how to raise capital for infrastructure development.
The initial public offering of Thailand Future Fund will be the first attempt by the government to monetise its toll road assets through selling stakes to both institutional and retail investors.
Bangkok said that the proceeds, which account for 2.4% of the country’s total planned transport investment this year, will help reduce the government’s dependence on both the annual budget and public debt to fund infrastructure projects.
Thailand Future Fund, a closed-end infrastructure fund established in 2016, has the right to 45% of the net toll revenue collected from the Chalong Rat Expressway and the Burapha Withi Expressway for a 30-year period.
Through the IPO, public investors will be able to share a slice in the toll revenue of Burapha Withi Expressway, a 55-kilometer road which connects southeastern Bangkok with Chonburi, Thailand’s largest industrial hub and home to the country’s largest deep-sea port. It is also one of the two toll roads which connects Suvarnabhumi International Airport to downtown Bangkok.
The fund is also entitled to revenue from the Chalong Rat Expressway, a 28.2-kilometer road which primarily serves residents in Bangkok’s northern suburbs.
Prospective investors are expected to enjoy stable revenue and low volatility in cash flows because the two expressways are both mature assets. The Chalong Rat Expressway started operations in 1996 while the Burapha Withi Expressway opened in 1998.
The Expressway Authority of Thailand will bear most of the capital expenditure and operating expenses, including maintenance, traffic management and safety procedures.
VALUATION
Based on the offer price of Bt10 per investment unit and the planned offer size of 4 billion to 4.47 billion units, Thailand Future Fund will yield 4.75% to 5.3% on estimated income next year.
The fund’s implied yield represents a fairly decent pickup of about 165 to 240 basis points to Thailand’s 10-year government bond which currently yields about 2.9%.
At the same time, the fund’s quasi-sovereign status should be enough to compensate investors for the yield difference against major infrastructure trusts like BTS Rail Mass Transit Growth Infrastructure Fund and Jasmine Broadband Fund, which yield 6.9% and 9.1% respectively on estimated 2019 payout.
The IPO of Thailand Future Fund will be highly retail-driven since up to 46.1% of the units have been reserved for the public. About 33.5% will be reserved for cornerstone investors and 16% for institutional investors, while the Ministry of Finance will subscribe to about 8% of the offering.
The 15-strong cornerstone investors include AIA, Muang Thai Life Assurance, Siam Commercial Bank Asset Management, Land and House Bank, Kasikorn Asset Management, Bangkok Life Assurance and Mahidol University.
Institutional bookbuild for the IPO, which started on October 12, will run through October 19 and the fund is expected to start trading on October 31.
The Thai government said that the establishment of Thailand Future Fund – the first government-sponsored publicly traded fund – promotes the development of the country’s capital markets by adding diversity to investment products and attracting foreign investors to Thai capital markets.
Bank of America Merrill Lynch and JP Morgan are joint international bookrunners. Finansa Securities, Krungthai Bank and Phatra Securities are joint domestic bookrunners.
