A combined primary and secondary share offering for Thai Airways successfully cleared the market yesterday (Wednesday) via a group of six leads led by JPMorgan and Merrill Lynch on the international side, plus Asset Plus, Bua Luang Securities and SCB on the domestic side.
Raising Bt22.14 billion ($555 million), the government sold 157.75 million shares (including a 57.75 million share greenshoe) and the company sold 285 million shares. The greenshoe was allocated to the international tranche, which received 260.75 million shares (59%), with domestic institutions and retail investors allocated 182 million (41%).
International investors received a slightly smaller allocation than the 70% initially anticipated in a reflection of the government's desire to maximise domestic demand.
Pricing came at Bt50 per share, a 5.66% discount to the stock's Bt53 close. International books are said to have closed nearly five times covered and were less price sensitive than the domestic institutional book, which closed two times covered.
A total of 130 investors participated in the international book, of which 91% were new to the stock. This is hardly surprising given the stock's limited freefloat of only 7%. This now expands to 29% as the government reduces its holdings from 93% to 71%.
Observers report a mixture of dedicated airline funds as well as regional and country fund participation, with a geographical split, which saw 50% placed into Asia, 30% into Europe and 20% into the US.
Year-to-date, Thai Airways has risen nearly 60% and the success of its offering shows how far the Thai market has returned to investor favour this year. Over the course of marketing, the counter climbed to a year-to-date high of Bt70 in early November after the company announced a divided of Bt1 per share, before falling back to where it started at the time of pre-marketing.
At current levels, the carrier is valued at five times 2004 earnings and analysts say it still has value compared to other regional airlines, which average a forward P/E of 14 times earnings. Bankers say roadshows were particularly critical since the equity story has historically been tarnished by Thai political infighting.
Key points to put across were the efficiency drive implemented by president Kanok Abhiradee, who has been widely applauded by analysts for his restructuring efforts. However, a number point out that much of the company's FY03 earnings can be attributed to a favourable exchange rate (strengthening Baht) and Bt4 billion insurance surcharges dating back to 1991, which have recently been transferred to the P&L statement. Without the surcharges, the company would not have been able to increase net income from Bt10.18 billion in FY02 to Bt12.45 billion in FY03.
However, as CSFB concluded in a recent research report, "Thai Airways is clearly making strides in improving its operational result through yield management as well as the reduction of some domestic routes, which are likely to be loss making."
The company has a relatively heavy capex burden over the coming few years, which will be partially mitigated by the new offering. The majority of capex will be absorbed by re-location costs to the new airport (Bt13.5 billion) and the acquisition of seven new aircraft from United Airlines (Bt13.2 billion).
