Next month will see the long-awaited listing of Jasmine Broadband Internet Infrastructure Fund, which would mark Thailand’s largest IPO since True Corp listed its infrastructure fund in a $1.80bn deal in December 2013. On January 20, Jasmine International said it had received regulatory approval to sell shares in its internet arm, after about two years of delays.
“It’s been a slow start for the region,” said a Singapore-based regional head of ECM. “Malaysia and Indonesia are reeling from the collapse in oil prices, while Singapore is slow and steady. But liquidity is abundant in Thailand, both from retail as well as institutional investors.”
Among the names set to grace the Thai equity capital market for chunky financings in 2015 are state-owned Electricity Generating Authority of Thailand (Egat) and Airports of Thailand, which are seeking Bt20bn ($614m) and Bt50bn-Bt60bn, respectively, from their IPOs, say bankers close to the transactions.
The pipeline has not looked this strong since 2013, and one big reason for this is the SEC’s keenness to improve the market capitalisation of the stock exchange. Lawyers say the regulator wants to attract more companies to list by cutting cumbersome disclosures and speeding up the IPO process, although these measures are at the proposal stage and are yet to be implemented.
The SEC also said last year it would allow foreign firms to list in Thailand via depositary receipts. Analysts say this is close to the final stage of negotiations and could be put in place soon.
Premium valuations
The SEC’s push is one factor, but the stock market is also getting a boost from premium valuations. The market is trading at forward P/E multiples of around 18x, above the historical average of around 15x-16x.
“That’s why more companies are mulling a listing now,” said an ECM banker at a local bank. “No one will be interested to list at 12x or 13x P/E.”
Moreover, with the way the rest of the region is looking at the moment, investors too will be more than happy to buy shares at a premium.
“Valuations in Thailand are not cheap,” said a southeast Asia head of equity syndicate. “But there’s not a lot of quality growth to be had in southeast Asia right now. So if [investors] have the cash and need to put it to work, Thailand is the option. You can’t sit on your hands.”
Despite the optimism, bankers and investors say concerns are mounting about how long that positivity will last. The Thai economy, for one, is painting a mixed picture.
Economic woes
The government is targeting GDP growth of just 1% for 2014, which already looks stretched after growth in the nine months to September 2014 came in at a tepid 0.2%. Add to that bigger macro factors, such as news of quantitative easing and sliding oil prices, and the scenario only becomes more dismal.
“The market could trade sideways in the near-term, given external factors like the volatility in oil prices and fund flows in and out of emerging markets,” reckons Thanawat Patchimkul, head of overseas business at DBS Vickers Securities in Thailand.
The slowdown in the eurozone and volatility induced by the European Central Bank’s quantitative easing, which was scheduled to be unveiled on January 22, could see foreign investors reducing their exposure to risk assets, he added.
But Thailand will probably escape unscathed because its weighting in the portfolios of international funds is relatively small. “It probably won’t lead to a huge sell-down in our equity market,” said Patchimkul.
This bodes well for future deals, which are numerous, say bankers. Besides Egat and Airports of Thailand, names such as Platinum Group and Global Power Synergy are also eyeing the IPO market.
But the equity capital market will not be limited just to listings, said a Thai-based banker. He reckons blocks and convertible bonds will also start hitting the market soon.
Robust stock market
Thailand last year priced the most number of IPOs since 2010, but those deals raised about half of 2013’s volumes at $2.60bn, according to Dealogic. Total ECM activity peaked in 2013 with a volume of $7.02bn, before dropping to $5.01bn in 2014 as investors waited on the sidelines for Thailand’s military coup to settle down.
Nevertheless, the benchmark SET50 Index has jumped as much as 12% since the military overturned Thailand’s government in May last year, and is now up 2.87% for the year. It has returned an impressive 20.86% over the past one year — vastly better than some of its southeast Asian counterparts.
But the benefit of this performance on international investors has so far been minimal. Thai long-only funds usually feature heavily in local deals, to the point that issuers feel they can do without the participation of foreign funds.
A banker at a local brokerage explained that issuers only look to bring in international investors if the trade exceeds Bt10bn, as they can otherwise get enough demand from just local bidders.
But the list of potentially larger sized deals this year, especially the infrastructure funds, could see foreign funds adding to their Thai equity holdings.
“We expect more companies to list this year than 2014,” said a securities partner at an international law firm. “More than 20 companies are waiting for the regulator’s approval currently and there will be some large issuers of over Bt10bn joining the queue.”