Siam Cement has sold a 15.6% stake in PTT Chemical, raising Bt33.04 billion ($1.1 billion) in the largest block trade in Thailand ever. The deal, which was launched at about 11pm Hong Kong time on Tuesday and completed before the Thai market opened yesterday, is more than four times the size of the country’s second largest overnight placement– a $223 million sell-down in Ratchaburi Electricity Generating Holdings, which was completed in November.
The sale is also massive when considering that the inflow of foreign capital into the Thai equity market this year is only about $1.8 billion. According to sources, about 82% of the demand for PTTCH came from international investors and the allocation was not too different from that.
The strong demand allowed the deal to be upsized by 16% to 236 million shares from 204 million at launch, which meant the deal accounted for about 20 days worth of trading and some 75% of the free-float. The shares were offered at a price between Bt140 and Bt146 and priced at the bottom for a 9.1% discount versus Wednesday’s close of Bt154.
The low-end pricing was partly a function of the increased deal size, but likely also reflected the fact that the share price has more than doubled this year and was trading only about 5% below its 52-week high prior to the deal. However, 9% isn’t exactly excessive for a transaction this size. The earlier mentioned Ratchaburi block came at a 10.2% discount. According to a source, anchor demand from high-quality investors in the US had also been signed up based on a Bt140 price.
And there was a lot of interest at the final price. Even though the deal didn’t launch until close to midnight (Hong Kong time), the deal was covered quite quickly on the back of the anchor orders, but there was also significant “walk in” interest both from the US and, in the early morning, Asia. The timing of the deal meant participation from Europe was thinner.
The interest included long-only investors, existing shareholders and some punters. The final message to investors before the offer wrapped up at 8.30am was that the deal was approaching two times covered. In all, it attracted about 80 investors, although sources said allocations were skewed in favour of the anchor investors.
The fact that PTTCH is a large bluechip company with strong government links through its parent, PTT, likely helped draw investors to the deal. PTT is majority owned by the Ministry of Finance and in turn owns 48.7% of PTTCH. From an operational point of view, this is also a good point in the business cycle for the company as it makes money from the spread between oil and gas prices. PTTCH uses natural gas as the feedstock for its products and as gas prices are kept down thanks to government subsidies, rising oil prices means widening margins. According to a banker there is also expected to be limited new capacity coming on board in 2011, which suggests the demand/supply dynamic will be favourable.
Add to that the fact that PTTCH’s key competitor, Petronas Chemical, which listed in Kuala Lumpur in November following a well-received $4.1 billion initial public offering, is trading at a richer valuation, even though PTTCH is growing at a faster rate. Based on analyst projections, the Thai company is expected to post 83% earnings per share growth next year.
The sell-down by Siam Cement will also help improve PTTCH’s free-float which was only about 22% before the deal. That should further increase the attraction for investors. It also make the sale something of a liquidity event and a buying opportunity for investors who wished to increase their exposure to Thailand, which is the second best performing stock market in Asia this year after Indonesia.
Siam Cement has never viewed PTTCH as a core shareholding. It received the shares as a result of an earlier partnership with PTT and has no say in how the business is run. A source said the company will use the proceeds from the sale to invest in its own chemicals business. Siam Cement held a 21.6% stake before the placement and will be subject to a 90-day lockup on its remaining stake.
The late launch was said to have been caused by a documentation issue that needed the involvement of lawyers to be sorted out, and while the bookrunners could have chosen to hold off on the launch for another day sourced said the positive European markets and strong opening in the US convinced them that the deal could get done before the Wednesday opening.
The share price fell 5.2% to Bt146 yesterday, and never went closer to the Bt140 placement price than bt144.50, which must be viewed as a good outcome.
The placement was arranged by Bank of America Merrill Lynch, Credit Suisse, Phatra and UBS.
