AAT IPO - ready for take-off

This decision was confirmed on 1 October by AAT's president, Air Chief Marshal (ACM) Terdsak Aujjaruk, who issued a statement saying that plans to sell a 30% stake to the public remain on track.

He noted that AAT has been profitable every year for the past 23 years, and that with its low risk business and limited private sector competition, its share offering should be favourably received by the market. AAT's roadshow for domestic and overseas investors kicks off on 28 October and is due to last until 13 November, with Merrill Lynch Phatra Securities acting as financial advisor and Merrill Lynch and Credit Suisse First Boston as international lead managers.

As part of its privatization process, AAT was registered as a public company on 30 September 2002, at which time the state enterprise was renamed Airports of Thailand Public Co Ltd (AOT) with registered capital of Bt5.747 billion ($132 million) that will be increased to Bt10 billion prior to its IPO. Also, AOT has assumed control of Bt42 billion ($9.66 billion) worth of assets from AAT, as well as Bt8.1 billion of debt ($186 million).

At the same time, it was announced that a committee has been established to advise AOT on the relocation of operations from Don Muang International Airport to the New Bangkok International Airport (now officially referred to as Suvarnabhumi Airport), due to begin operations in 2005 with projected capacity of 40 million passengers per year. To ease investor concerns about meeting this target date, AOT management has also revealed that the International Civil Aviation Organization (ICAO) has been appointed as an advisor on the transition process from Don Muang to the new airport.

Suvarnabhumi Airport (total cost $ 5.1 billion) is being funded primarily by soft loans from the Japan Bank for International Cooperation (JBIC). In late September, state-owned New Bangkok International Airport Co (NBIA) signed another loan agreement with JBIC for Yen 34.78 billion that will fund the continuation of work on the new airport. This 40-year loan, with a grace period covering the first 10 years, carries an interest rate of just 0.75%.

Since 1968 JBIC has lent Thailand a total of Yen 1.93 trillion, with the majority of loans being used to finance infrastructure projects built by Japanese contractors, as well as to fund various human resource development schemes and rural development projects.

ACM Terdsak confirmed that AOT aims to raise between Bt12-15 billion ($276 million to $345 million) from its IPO by offering a 30% stake to the public. The remaining 70% of AOT will continue to be owned by the Ministry of Finance. Approximately one-third of the shares being offered to the public will be made available to foreign investors.

AOT intends to use the proceeds from its IPO to gear up itself up to provide services at Suvarnabhumi Airport, namely customer service, ground support, catering, technical service, cargo and communications. Moreover, completion of Bangkok's new international airport will be crucial for helping AOT achieve its goal of increasing non-aeronautical revenues from the current 37% level to 50% by the middle of the decade.

However, it should not be assumed that this 2005 target date will be easily achieved. Frequent construction delays and the management void at NBIA (for example the post of Managing Director at NBIA has been vacant since early 2002) have already attracted widespread criticism. Prime Minister Thaksin appears to share this concern, which prompted him to issue an order in late September to accelerate the pace of work on the airport.

In fact, during a recent meeting with foreign airline executives, Prime Minister Thaksin vowed to visit the construction site at least once every three months to check on the work-in-progress himself. Already, a total of eight foreign airlines have relocated their regional operations centers away from Bangkok this year (mostly to Singapore) because they fear that the new airport may not be ready until 2007 or beyond.

Given that planning for the Suvarnabhumi Airport began over 40 years ago, and that as of August 2002 only 19.5% of the work had been completed, the skepticism being expressed by foreign airlines appears warranted.

Indeed, the critical nature of the Suvarnabhumi Airport in ensuring that Bangkok remains the gateway to Southeast Asia - especially for long-haul flights from Europe - suggests that AOT's IPO will in fact go ahead as scheduled despite the uncertainties prevailing in global financial markets. If the AOT's IPO were to be postponed, it could send a signal that Thailand's commitment to completing Suvarnabhumi Airport is wavering.

Any significant delay would also cast a shadow over the schedule for the IPOs and share offerings by much larger state-owned entities (for example Krung Thai Bank, TOT and CAT) whose schedules have already slipped into late 2002/2003.

Danial Nielsen is an analyst for the Brooker Group. For more information about the Brooker Group please click here.

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