Bangkok SkyTrain fund to raise up to $1.4 billion from public investors

The institutional bookbuilding will kick off today for Thailand’s first infrastructure fund IPO, but sources say a large portion of the deal has already been sold to 20 cornerstone investors.

Based on the indicated price range, BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF) is seeking to raise between Bt40.04 billion and Bt41.58 billion ($1.35 billion to $1.4 billion) from public investors, according to sources who were citing a prospectus filed with the Thai stock exchange on Friday.

Of that, the cornerstones will take up approximately $818 million worth of units at the bottom of the indicated price range, or close to 60% of the public offering. In terms of numbers, half of the cornerstone investors are long-only investors, while half are hedge funds. However, the long-only funds are participating in greater size and will take about 75% of the units.

The three biggest cornerstones are the Capital Research and Management, which will invest at least $134 million, AIA Group, which will buy approximately $105 million worth of units, and Schroder Investment Management, which will take up $102 million worth of units — again based on the bottom end of the price range. The 20 cornerstones are buying a combined 2.33 billion units, which means the dollar size of their investments will depend on the final IPO price. If the price is fixed at the top, the size of the cornerstone tranche will be about $850 million.

As per Thai regulations, the cornerstones are not subject to a lockup. Morgan Stanley Investment Management, JF Asset Management, Fidelity, hedge funds Myriad and Azentus, and the Thai arm of AXA Life Insurance are also part of the cornerstone line-up.

On top of that, another 20% of the units, or approximately $280 million worth, will be set aside for domestic retail investors, leaving less than $300 million to allocate to institutional investors other than the cornerstones if the deal is priced at the bottom of the range. This leaves the IPO in good shape even before launch, and may lead to a scramble among investors for a piece of the pie. One source noted that the cornerstone tranche has already been scaled back after the demand exceeded the total number of units targeted at institutional investors.

Another sign of the confidence the joint bookrunners and the issuer have in the deal is the tight price range, which gives them little flexibility to use price to rope in additional investors.

The infrastructure fund, whose assets will comprise the cashflow generated by ticket sales on Bangkok’s SkyTrain system, is offering 3.85 billion units to public investors at a price between Bt10.40 and Bt10.80.

The IPO will account for 66.6% of the total size of the infrastructure fund, while the remaining 33.4% will be bought by the sponsor — Bangkok-listed BTS Group — bringing the total capital-raising for the fund to about $2 billion to $2.1 billion depending on the final price.

Even counting just the tranche going to public investors, this will be the largest IPO in Thailand ever, ahead of Thai Oil’s $784 million offering in 2004 and Rayong Refinery’s $719 million IPO in 2006, Dealogic data show. The biggest deal last year was the $602 million IPO of Tesco Lotus’s property fund.

The price range translates into an implied dividend yield of 6% to 6.2% for the fiscal year to March 2014. This is likely part of the attraction, particularly as investors have been focusing on defensive yield-paying vehicles such as real estate investment trusts (Reits) during the past couple of months.

The $1.3 billion IPO of Mapletree Greater China Commercial Trust (MGCCT) in Singapore in late February was heavily oversubscribed and attracted more than 300 institutional investors, highlighting that demand. The Reit gained 10.8% when it started trading on March 7 and as of last Friday was up 13% from the IPO price.

Listed funds, or trusts, is also a new asset class in Thailand where the first Reit targeted at international investors went public only last year. BTSGIF will be the first listed trust holding infrastructure assets.

The Thai government is promoting the development of mass-transit rail as a national priority and a successful first deal could also open the way for other infrastructure IPOs to follow, according to an analyst said.

BTS Group will continue to own and operate the SkyTrain system in Bangkok and will also develop new mass-transit projects, which it will sell to the fund after the development phase. As reported earlier, the SkyTrain fund stands to benefit from passenger growth, fare increases and operating leverage in the core business. The fund will focus on opportunities with strong cashflow potential, and will also be able to seek out non BTS-related infrastructure opportunities, it says.

BTS Group, which is also engaged in property, media and services businesses along its mass-transit routes, has seen its share price gain 27.3% so far this year, while the Thai benchmark SET index has added close to 15%. The index was up 36% in 2012, making Thailand the second best performing market in Asia for the year.

The IPO of BTSGIF is arranged by Morgan Stanley, Phatra Securities and UBS. The institutional order books will close on April 4 and the trading debut is scheduled for April 19.

The full cornerstone line-up are as follows: AIA Group; Azentus; Bangkok Life Assurance; Capital Research and Management; Cheyne Capital Management; Davidson Kempner European Partners; Fidelity; Grantham, Mayo, Van Otterloo & Co (GMO); JABCAP; JF Asset Managment; Krungthai-Axa Life Insurance; Marshall Wace Investment Strategies; Morgan Stanley Investment Management; Myriad; PCA Fund; Regal Funds Management Asia; SAC Capital Associates; Sigma Capital Associates; Schroder Investment Manangement; and Thai Life Insurance.

Except for the three largest names, their individual investment sizes are not disclosed in the prospectus.