The initial public offering of a 40% stake in Ratchaburi Electricity Generating Holding - the first major new listing in Thailand since the outbreak of the Asian economic crisis in 1997 - offers little in the way of risk and, consequently, limited scope for strong returns. Indeed, the brokers arranging the issue, primarily SCB Securities and Global Thai Finance & Securities, are doing their best to portray Ratchaburi’s shares as something closer to a high-yield bond than a traditional equity investment.
The reason for this is simple; Thai stock market investors have had an extremely rough ride – the SET index has almost halved since the start of this year. Furthermore, the one and only recent IPO in Thailand gave little cause for cheer. Shares in General Environmental Conservation (GENCO), which raised a fairly modest Bt300 million ($6.98 million), were only just subscribed and, since listing on 28 September, their price has fallen by a third.
Whilst too shell-shocked to dabble in equities, Thais are, however, having a love-in with bonds. This is despite the questionable protection Thailand’s new, untested bankruptcy laws might afford them as and when the next default situation arises. In part, Thai investors are prepared to brave or ignore this risk in order to try and better the pathetic returns of 2% or so that the local banks are offering on time deposits.
For Ratchaburi, a subsidiary of state-owned Electricity Generating Authority of Thailand (EGAT), its utility profile makes it dull enough to drift near high-yield bond territory. Just to make sure there isn’t any scope for an upset, EGAT has signed a 25-year contract with Ratchaburi, fixing the latter’s cost inputs and the price and amount of its power output. If for whatever reason there are excessive interruptions to Ratchaburi’s power generation, this too will have no impact as it has been insured against.
Despite doing everything imaginable to make Ratchaburi a safe haven for investors, the 580 million shares being sold in the company’s IPO have been priced at Bt13 each - the low end of the Bt13 to Bt15 range that was set – putting the total fund-raising at Bt7.58 billion. By most accounts, Ratchaburi is cheap.
“I am quite bullish on this stock … The consensus fair value estimates for this company are in the Bt19 to Bt22 range,” says Maris Tharab, managing director of ING Funds in Bangkok. For 2001, the dividend yield at Bt13 a share will be 7%.
Bill Anderson, a senior vice-president in charge of institutional sales at Seamico Securities, a sub-underwriter on the Ratchaburi IPO, says the low pricing comes as no surprise given the fall in Thai stock prices since the range was announced. Seamico, he adds, has already got commitments in respect of all the Ratchaburi shares it was given to sell.
The sale kicks off Thailand's privatizaton programme - something required by the International Monetary Fund in return for the assistance provided during the Asian economic crisis. The issue price of Bt13 was the minimum at which the Thai government was prepared to allow the Ratchaburi IPO to proceed. Ratchaburi's employees will be able to buy a 15% stake in the company at Bt10 a share.
