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Treasury & Capital Markets
What is driving the Thai IPO market?
Activity picks up in 2017, driven by retail investors as well as the increasing use of cornerstone investors
Chito Santiago 29 Sep 2017

THE initial public offering (IPO) market in Thailand is likely to sustain its current robust deal flow into 2018 with more than 30 transactions in the pipeline.

Following what a senior banker described as a blip in 2016, the activity has picked up this year with 15 deals completed as of September 13 valued at US$1.63 billion, according to Thomson Reuters. This was more than 5x bigger than the US$309.6 million raised from the seven deals in the corresponding period of 2016.

“There is a strong liquidity that supports the IPO market,” the senior banker says. “Unlike in other markets, such as Hong Kong and Singapore where you have a large institutional base, the IPO market in Thailand is driven by retail investors, which demonstrates why the Stock Exchange of Thailand has an active market turnover in Southeast Asia.”

The banker also attributes the pick-up in activity to attractive valuation, with the average pricing-earning ratio at 17x-18x. The regulators are likewise helping the market with a faster turnaround time in approving the deal applications, which helps clear the backlog. “We still have a long way to go on this aspect, but at least we are seeing some improvements,” the banker adds.

For the whole of 2016, the IPO market in Thailand saw 15 transactions valued at US$1.34 billion, Thomson Reuters says, down from 31 deals amounting to US$3.01 billion in the previous year. For the past decade, the largest amount raised in the Thai IPO market was in 2013 when US$5.44 billion was raised from 33 deals.

The biggest IPO in Thailand so far in 2017 was for TPI Polene Power Company, which raised the equivalent of US$506.2 million and listed in April.

The next most-significant IPO to get listed will be TOA Paint, the country’s largest paint manufacturer, which is eyeing to raise up to 12.20 billion baht (US$368.60 million). The company is offering 254 million new shares and 253.6 million existing shares at a price range of between 22 baht and 24 baht each.

On selective basis, there is increasing interest by overseas investors in the Thai IPO market, but only in large deals. In the B.Grimm Power IPO, for instance, which raised 11.47 billion baht in July this year, 44.5% of the offering went to international investors, with the rest taken by domestic buyers. B.Grimm Power is an energy company which focuses on the development, financing, construction and operation of greenfield power plants.

For companies going public, Thailand has also adopted the concept of inviting cornerstone investors into the deal. This was first introduced in the 15.625 billion baht IPO for Bangkok Airways in November 2014, which had one cornerstone investor. Star Petroleum Refining followed suit in its 12.96 billion baht IPO in December 2015.

It was at this point in time, the banker notes, when the Securities and Exchange Commission of Thailand decided to look into this practice and invited a few leading local houses to discuss how to draft the regulatory framework around it, which was put in place in 2016.

“With a number of IPO deals now having cornerstone investors, the Thai investors are now more familiar with the practice,” the banker points out. “Previously, they were reluctant to sign non-disclosure agreements. They are now committing upfront and sign cornerstone agreements, which is good for the issuers and the market as a whole.”

B.Grimm Power has attracted three cornerstone investors – Asian Development Bank, which took 123 million shares, Muangthai Life Assurance (48 million shares) and Thai Life Insurance (30 million shares) – which were equivalent to 30.8% of up to 651.80 million of the newly issued ordinary shares for subscription.

TOA Paint has reportedly attracted a number of cornerstone investors, including domestic asset management companies.

There is no cap as to how much cornerstone investors can participate in a deal – it is driven by the market. The prospective issuer has to make a disclosure how much of the deal is likely to sold to cornerstone investors, and once it is confirmed, it has to disclose the name of the said investors. Based on the previous IPOs, cornerstone investors account for between 15% and 30% of each deal.

For next year, the IPO market is likely to be dominated by consumer-related transactions to take advantage of the rising consumer spending. Another sector that may do well in 2018 is real estate investment trust (Reit) as interest rates are coming down in Thailand. “The strong baht is pushing the Bank of Thailand to lower interest rates,” the banker notes.

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