BTS Group eyes $1 billion IPO of Thailand’s first infrastructure fund

Bankers started pre-marketing on Friday for an initial public offering of BTS Group’s infrastructure fund, which is aiming to raise about $1 billion. If successful, it will be the country’s first infrastructure fund, as well as its biggest IPO on record.

According to the current timetable, pre-marketing is expected to continue globally until mid-March, followed by a management roadshow and retail subscription, a source said on Friday. Trading is expected to start sometime in mid- to late-April.

BTS Group operates the SkyTrain system in Bangkok and is engaged in property, media and services businesses along its mass-transit routes.

The fund is called BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF) and its assets comprise the cashflow generated by ticket sales from the SkyTrain system. BTS Group will continue to own and operate the train system, and will hold one-third of the fund.

If successful, it will be the biggest IPO ever in Thailand, according to Dealogic, beating Thai Oil’s $784 million offering in 2004 and Rayong Refinery’s $719 million IPO in 2006. The biggest deal last year was the $602 million IPO of Tesco Lotus’s property fund.

Market participants are watching the fund’s progress closely, as a successful first deal could open the way for other infrastructure IPOs to follow, an analyst said. The Thai government is also keen to support the sector.

Investors are mostly interested in the fund’s yield, which will likely be about 6% in the first year and could reach close to 10% within the next three years, according to the analyst. The company has also said that dividends from an infrastructure fund will be exempted from personal income tax for 10 years.

There are no direct comparables to the fund, but investors will be likely looking at Singapore-listed Reits and property trusts, such as Ascendas Hospitality Trust, Ascott Residence Trust, CapitaCommercial Trust and CapitaMall Trust.

The four trusts are trading at a 2013 dividend yield of somewhere between around 4.9% and 6.5%, according to Bloomberg data.

The SkyTrain fund stands to benefit from passenger growth, fare increases and operating leverage on the core business, according to a company presentation. The fund will focus on opportunities with strong cashflow potential, and it is also able to seek out non BTS-related infrastructure opportunities, it says.

The Thai government is promoting the development of mass-transit rail as a national priority and BTS Group’s strategy is to develop new mass-transit projects, which it will sell to the fund after the development phase, according to the presentation.

Morgan Stanley, Phatra Securities and UBS are arranging the deal.

BTS Group was initially expected to start the pre-marking in early January, but it was delayed after allegations that a subsidiary had operated a tram business without proper authorisation, BTS Group said in a statement on January 10.

It also noted an additional accusation that the establishment of the infrastructure fund was a fraudulent offence and in breach of securities laws. The company asserts that it has established the fund properly.

“The establishment of the infrastructure fund supports the government’s policy and benefits the development of infrastructure in Thailand,” the company said in the same statement.

Despite volatility in the global markets, Thai stocks have been steadily trending higher. The benchmark SET Index inched down 0.1% on Friday, but it has gained about 11% since the start of the year, building on a rise of 36% in 2012.

BTS Group’s stock, which rose 0.6% on Friday, has gained more than 15% year-to-date. It jumped about 63% last year.