Bangkok SkyTrain fund sets $1.4 billion Thai IPO record

BTS Group’s infrastructure fund has raised Bt41.7 billion ($1.4 billion) from yield-hungry investors, becoming the first initial public offering of an infrastructure fund in Thailand and the biggest IPO ever in the country.

Investors continue to show appetite for defensive vehicles such as real estate investment trusts (Reits), and yield was a big part of this deal’s attraction. The fund, which is called BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF), fixed the price at the top of the indicative range for an implied dividend yield of 6%.

Before the launch, the fund secured 20 cornerstone investors, which accounted for about 60% of the public offering, based on the final price. The IPO comprised 66.7% of the total size of the infrastructure fund, while the sponsor, Bangkok-listed BTS Group, bought the remaining 33.3%. That brought the total capital-raising for the fund to $2.1 billion. Its trading debut is scheduled for April 19.

A wide range of investors took part in the transaction, such as sovereign funds, international long-only funds, hedge funds and wealth management and corporate investors, a source said on Friday. Asian investors dominated the demand, but the deal also drew a strong response from Europe and the US, the person noted.

The institutional tranche was heavily oversubscribed, and there were around 200 investors in the book, including the cornerstones, another source said. The deal was priced on Thursday night, London time.

At $1.4 billion, it is Thailand’s biggest IPO, ahead of Thai Oil’s $784 million offering in 2004 and Rayong Refinery’s $719 million IPO in 2006, Dealogic data show. The biggest deal last year was the $602 million IPO of Tesco Lotus’s property fund.

The infrastructure fund, which is backed by the cashflow from ticket sales on Bangkok’s SkyTrain system, sold 3.86 billion units to public investors at Bt10.80 each, raising $1.4 billion. The deal was marketed in a price range between Bt10.40 and Bt10.80, which translated into an implied dividend yield of 6% to 6.2% for the fiscal year to March 2014.

Of the tranche for public investors, the 20 cornerstones bought a combined 2.33 billion units, worth $856 million based on the final price. In terms of numbers, half of the cornerstone investors were long-only investors, while half were hedge funds.

The three biggest cornerstones were the Capital Research and Management, AIA Group and Schroder Investment Management, which committed somewhere between $106 million and about $140 million each, according to one source.

Some 771 million units, worth about $283 million, went to domestic retail investors, leaving about $280 million to allocate to institutional investors other than the cornerstones. One source noted that the cornerstone tranche had already been scaled back after the demand exceeded the total number of units targeted at institutional investors.

Listed funds, or trusts, are a new asset class in Thailand where the first Reit targeted at international investors went public only last year. BTSGIF will be the first listed trust holding infrastructure assets.

The Thai government is also promoting the development of mass-transit rail as a national priority and a successful first deal could also open the way for other infrastructure IPOs to follow, according to an analyst.

The IPO of BTSGIF was arranged by Morgan Stanley, Phatra Securities and UBS.

Shares in BTS Group, which is also engaged in property, media and services businesses along its mass-transit routes, fell 0.6% on Friday, but have gained nearly 26% so far this year. Meanwhile, the Thai benchmark SET index is up 7% year-to-date, after rising 36% in 2012, making Thailand the second-best performing market in Asia for the year.

BTS Group will continue to own and operate the SkyTrain system in Bangkok and will also develop new mass-transit projects, which it will sell to the fund after the development phase. As reported earlier, the SkyTrain fund stands to benefit from passenger growth, fare increases and operating leverage in the core business. The fund will focus on opportunities with strong cashflow potential, and will also be able to seek out non BTS-related infrastructure opportunities, it says.