Thai state-owned oil and gas giant PTT said Wednesday that it will acquire a majority stake in independent power producer Glow Energy from French energy giant Engie, paying Bt97.6 billion ($3 billion) in what is set to be Asia’s biggest M&A deal so far this year.
Thailand’s biggest company will acquire a 69.1% stake in Bangkok-listed Glow Energy through its majority-owned subsidiary Global Power Synergy, a local electricity and water supplier.
Global Power will buy 1.01 billion Glow Energy shares at Bt96.5 each, representing a 4.3% premium to the stock’s Bt92.5 Tuesday close.
Since the stake purchase exceeds half of Glow Energy’s issued capital, Global Power Synergy is required under Thailand listing rules to launch a tender offer for the remaining 30.9% stake that it does not already own.
The company said it will pay the same price per share for the tender offer, which could cost an additional $1.3 billion and lift the final consideration to $4.3 billion.
As it stands already, the transaction will be the biggest buyout of a listed company in Asia after the $11.6 billion take-private of Singapore-listed Global Logistics Properties in July last year. At $4.3 billion, it could become the fourth-biggest merger or acquisition in Thailand’s history.
SWALLOWING THE GIANT
Global Power Synergy, with a market capitalisation of only $3.1 billion, is effectively swallowing an entity that is about one-third bigger than itself. Consequently, it has to stretch itself financially to get the deal done.
The company is unable to fund the transaction on its own. Based on its equity of Bt43.4 billion and its debt covenant ceiling of 2.5 times, it will be able to borrow up to Bt108.5 billion – about 23% short of the total potential consideration of Bt141 billion.
As a result, Global Power Synergy said it will increase its capital base by Bt74 billion with an equity injection most likely by PTT. The company also plans to raise Bt68.5 billion in debt to fund the acquisition.
Equity analysts are generally cautious about the transaction given that Global Power Synergy has to increase its capital and stretch its balance sheet. Bualuang Securities, for example, cautioned that the firm will have no room to invest in any other profitable projects because its debt/equity ratio is set to hit its ceiling.
Global Power Synergy's share price fell by as much as 7.7% on Wednesday afternoon following the deal announcement.
However, the senior management of Global Power Synergy is optimistic about the transaction.
Chief executive Toemchai Bunnag said in a statement that the acquisition will more than double the company’s power generation capacity to 4.8 gigawatts from 2.3 gigawatts, as well as expand its customer base.
From a balance sheet perspective, the acquisition is earnings accretive since Global Power Synergy – trading at a historical price-to-earnings of 31 times – is buying an entity that at 14.1 times is more than half its value on a P/E basis.
For Engie, the transaction is in line with its strategy to reduce its carbon footprint and focus on low-carbon activities. By selling its stake in Glow Energy, Engie will reduce its total coal-fired power capacity by 14% and will no longer own any coal-fired assets in the Asia-Pacific region, the company said in a statement.
Global Power Synergy will seek shareholder approval for the acquisition and the capital increase on August 24.
