The final price of Bt10 per share compares with a range of Bt9 to Bt13 and gives a total deal size of Bt8.46 billion ($269 million). While this is a good achievement given the number of IPOs that have been pulled over the past few months, the price was apparently not attractive enough for the Ministry of Finance which decided to sell only the minimum 72.5 million shares. A source familiar with the transaction said the ministry, which held 12.5% of Esso Thailand before the IPO, also wanted to show its support for the company at this price and thus chose not to use its option to sell all 326.25 million shares. Its stake will drop to 7.5% immediately after the deal.
The remaining 91% of the offering were all new shares, meaning Exxon Mobil isnÆt selling in the IPO. However, its stake will still fall to 67.5% from 87.5% through dilution. In total, the IPO comprised 845.8 million shares, or 25% of the company. If the 10% greenshoe is exercised in full, the free-float will increase to 26.8% and the proceeds will swell to $298 million.
The deal was split half and half between international and domestic investors with Morgan Stanley acting as the sole bookrunner on the international portion and Phatra Securities arranging the domestic offering. According to the source, the international tranche was about seven times covered, while the subscription ratio for the overall deal was about five times. The latter may have been dragged down slightly by the fact that the retail portion of the domestic offering, which accounted for about 19% of the total deal, had to be closed (in accordance with Thai regulations) after only one day after being three times covered. The retail offering was supposed to be open for two days.
Investors liked the company partly because of the sector it is in, but perhaps more because it is based in Thailand, which is one of the best performing stockmarkets in Asia year-to-date after Taiwan and Karachi. The index was down 2.4% as of yesterday, but with major markets like India down 18%, and Tokyo and Hong Kong off about 10%, that is not too bad a development.
ôExpectations for refining margins are all over the place, but the one thing investors agree on is that they are bullish about Thailand,ö notes one observer. The deal, he adds, was also launched just after the main concerns regarding a global credit crunch started abating, meaning on a relative basis the timing was probably just right.
On top of that, Esso Thailand has transparent cash flows and the commitment to pay a special dividend of Bt1 per share following the IPO further increased the attraction. Based on the IPO price and including the special dividend, the 2008 dividend yield will be about 19%. But even without the special dividend, the dividend yield for this year û and supposedly in coming years as well û is still well above the yield of its closest comparables PTT and Thai Oil, which currently traded at a 2008 prospective yield of 3.4% and 6% respectively.
Esso Thai has committed to an ongoing payout ratio of 40%, which compares with 25% for Thai Oil and 30% for PTT.
Not surprisingly therefore, among the 100 or so international investors who participated in the IPO, there were a fair number of yield-focused long-only funds.
The newcomer was also pitched at a sizeable discount to its peers in terms of price-to-earnings ratios. And that gap widened further during the roadshow (which started on April 8) as PTTÆs share price rose 8.8% and Thai Oil edged up 7.8%. At the time of pricing, PTT was valued at about 7.3 times this yearÆs earnings, while Thai Oil was quoted at 9.8 times. Based on the final IPO price, Esso Thai is coming to market at a 2008 P/E multiple of 5 û a discount ranging from 31.5% to 49% versus the other two.
However, Esso Thailand wonÆt start trading until May 6, which means there is still quite a lot of price risk, depending on what the Thai market does in the meantime.
An analyst at Phillip Securities in Thailand, who recommended investors to subscribe to the IPO, has set a 2008 target price of Bt15 on the stock based on a P/E of seven times. However, he notes that Esso Thailand deserves to trade at a discount to Thai Oil and PTT since it has no plan for capacity expansion. It is planning to spend about $400 million to upgrade its refinery to boost product quality though, which is needed in order to meet new pollution standards that are to be implemented by the government in 2012.
Esso Thailand is the third largest refiner in Thailand with an operating history dating back more than 100 years. It owns and operates a complex refinery with a capacity of 177,000 barrels per day of crude oil and sells refined petroleum products directly to commercial customers and to retail consumers through its network of branded ôEssoö retail service stations. The company also has an aromatics plant with a capacity of 500,000 tonnes per annum of paraxylene and a solvent production unit with a capacity of 50,000 tonnes per year. Its products include LPG, gasoline, jet fuel/kerosene, diesel, fuel oil and asphalt.
This is the first IPO in Thailand targeted at international investors since Total Access Communication, the countryÆs second largest mobile phone operator, raised Bt8.88 billion ($275 million) in June 2007. Total Access was already listed in Singapore, however, and thus available to international investors before the IPO in its home market. There has been no other straight equity offering by a Bangkok-listed company since then, although integrated shipping company Thoresen Thai Agencies did raise $140 million through a convertible bond in September last year.
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