The initial public offering (IPO) of General Environmental Conservation Public Co Ltd (GENCO), Thailand's first new listing in three years, was oversubscribed by less than 10%, according to Chaiwat Kovavisarach, director at lead arranger SG Asia Credit Securities.
Of the 10 million new shares offered at Bt30 each, 45% went to institutional investors, 30% was sold to retail investors via the eight co-arrangers involved in the deal and 25% was picked up by "walk-in" retail investors. Originally, it was hoped this latter group of investors would take nearer to 40% of the shares on offer, but demand proved insufficient and so allocations for the other two groups were increased. Presale commitments from the institutional investors and those investing via the co-arrangers were 40% above the six million shares that had been earmarked for these two investor groups.
SG Asia Credit handled the deal on "a best effort basis", says Kovavisarach, meaning that there was no underwriting involved - if the shares weren't fully subscribed the deal would have been pulled. In part, retail demand was soft due to stockmarket weakness since the public subscription period opened at the start of this week. There were also some pricing concerns, with the issue price set at 14 times year 2000 earnings, against which the market as a whole trades at around 12 times.
Kovavisarach says investors should look to GENCO's 2001 earnings given that we're almost in the fourth quarter of this year; this would put the shares on a price/earnings multiple of 11-12 times. In addition, GENCO has good growth prospects. "Since it started operating (in 1994), GENCO has shown sustainable growth of 40% per annum compound, with revenue increasing from Bt234 million ($5.60 million) in 1998 to Bt528 million in 1999. In 2000, the company expects to reach Bt700 million in revenues, with a net profit of Bt138 million," SG Asia Credit and GENCO said in a joint statement.
The big question is: why did GENCO, an industrial waste treatment operator, choose to take the plunge and stage an IPO?
GENCO chief executive officer Sripop Sarasas says: "We did not expect the market to be this bad, but we need to expand the business." Despite only having Bt50 million of existing borrowings and Bt675 million of equity, the company would not have been able to borrow Bt300 million from the banks and the bond market isn't an option for companies as small as GENCO. "For a company like GENCO it is very difficult to access funds by these means," he says.
In addition, the Thai Ministry of Industry, which owns 25% of GENCO, was keen for the company to hold an IPO. The state-owned body wants GENCO to expand but doesn't want to come up with additional funds itself. Also, the Thai government was no doubt keen to test investor demand for new share issues; probably best done when you're looking to raise just Bt300 million rather than the Bt22 billion the government hopes to raise via the sale of a 23% stake in Thai Airways.
Sarasas says GENCO will be spending Bt200 million to upgrade existing facilities and a further Bt250 million will go towards purchasing new landfill sites and necessary equipment. The additional funding over and above the IPO proceeds will come from cashflow over the next two years and once the investments have been made GENCO's capacity will be double what it is today and its share of the (legitimate) industrial waste treatment market in Thailand should be 25% to 30%, he adds.
The new shares, which are expected to list on 28 September, are equivalent to 14.3% of GENCO's enlarged share capital. Following the IPO, the Thai Ministry of Industry will own 21.4% of GENCO, the General Asia Group 29.0% and Deutsche Bank Singapore 12.6%.
