Taking advantage of a 50% rise in its share price so far this year, Bangkok Bank has announced plans to re-finance Bt46 billion ($1.15 billion) of expensive hybrid securities undertaken at the height of the financial crisis. The move has been expected all year and many believe Kasikorn Bank (the old Thai Farmers Bank) may follow suit with plans to re-finance up to Bt40 billion ($1 billion) in hybrids.
Bangkok Bank's house bank, Morgan Stanley, is lead managing the offering, which has an upper filing limit for 533 million shares. However, the bank is expected to issue much less than this, given it has set target proceeds of Bt28 billion (plus a 15% greenshoe) and is hoping to price at a relatively slim discount to its current share price of Bt90.5 per share (foreign shares) and Bt84 (local shares).
Because the deal is classified as a Thai public offering, the domestic SEC will take 15 days to process the local prospectus and the bank has consequently structured a marketed rather than accelerated transaction. Pre-marketing will last for two weeks, followed by two weeks of roadshows and pricing towards the end of the first week of December.
Bangkok Bank shares fell 7% yesterday (Monday) as full details of the offering became clear and investors realised they will suffer about 17% dilution on completion of the deal. Nevertheless, most analysts still have a buy recommendation on the stock and regard any weakness in the run up to pricing as a buying opportunity.
At a current share price of Bt90.5, non syndicate analysts say Bangkok Bank is trading at about two times 2003 price to book and expect the new deal to price between around 1.8 times. Its main rival Kasikorn is trading a shade higher at 2.2 times.
Both banks typically trade at a premium to the sector. The most recent pricing benchmarks are Krung Thai Bank, which saw its 3.45 billion share government divestment priced at roughly 1.4 times 2003 book last month and Bank of Ayudhya, which priced at one times 2003 book back in August.
Observers say the split between international and retail investors remains undetermined. However, international investors are likely to be allocated at least 50%, even though the stock is already at its 48.8% foreign shareholding limit. This is partly because the forthcoming deal comprises a new share offering. But the bank has also set up a Non Voting Depositary Receipt (NVDR) facility, which allows foreign investors to own more than half the bank's outstanding share capital without being able to take control.
The bank's hybrid securities, which fall due in April 2004, carry coupons around the 11% level and management say they also hope to re-structure the remaining Bt18 billion (Bt13.8 billion post greenshoe). This may either be done via internal cash, or most likely through the domestic subordinated debt market. Kasikorn Bank, for example, recently raised tier 2 debt with a sub 4% coupon.
Either way, the new transaction should reduce the bank's interest expense costs by Bt5 billion per annum.
Pre-offering, just over 50% of Bangkok Bank's tier 1 capital was in the form of hybrids, way above international norms around the 20% to 25% level. UBS estimates that core tier 1 capital will be raised from 4% to 7.1% and overall capital boosted from 12.2% to 15% by the end of 2003.
The bank's equity to asset ratio will also improve to roughly 7.5% from 4.88%. Management believe the exercise marks the tail end of a restructuring process, which finally normalizes the bank's capital structure and paves the way for a resumption of dividends in 2004.
