Airport Authority IPO set for November

In the first of our Thai privatization newsletter, we give an overview of forthcoming deals.

In early August, the last public hearing was successfully concluded in Bangkok as part of preparations for the privatization of the Airports Authority of Thailand (AAT), which is still scheduled to be listed on the Stock Exchange of Thailand (SET) in early November. Back in July, the Thai Cabinet approved AAT's privatization plan that aims to raise up to THB15 billion ($346 million) by selling 30% of its shares to the public via an IPO that is due to take place in late October. Of the 30% stake being offered, approximately 70-80% has been reserved for domestic investors; the remainder will be offered to foreign investors. Converting AAT into a public company with the name Airport (Thailand) Public Company Limited (registered capital: THB16.4 billion) has already been completed.

AAT is the operator of the current Bangkok International Airport, better known as Don Muang, as well as four provincial international airports located in Chiang Mai, Phuket, Hat Yai and Chiang Rai. AAT has been in existence for 23 years and has been consistently profitable throughout its history, which helps make it one of the more attractive state enterprises that the Thaksin government is seeking to privatize over the next 2-3 years. Also, more than 90% of AAT's employees are reported to be in favour of the privatization programme, thus eliminating this potential obstacle that for other state enterprises is proving difficult to overcome. In fact, in order to win staff support, AAT's management has gone so far as to guarantee that employees' benefits would remain unchanged after the IPO.

AAT will also control the New Bangkok International Airport (NBIA) that is currently under construction and scheduled for completion in 2005. Being built at a cost of THB220 billion ($5.1 billion), around 18% of the NBIA has already been completed. The Thai government is looking to AAT's IPO as an additional source of funds for this critical infrastructure project that is being built with financial assistance from the Japanese government.

Merrill Lynch Phatra, which has already been appointed as AAT's financial advisor for the IPO, has recommended that most of the issue be offered to institutional rather than retail investors. The exact size of the domestic and foreign tranches has yet to be decided.

The Thai government is keen to take advantage of renewed foreign investor interest in the Thai bourse, which has helped fuel a rally on the Stock Exchange of Thailand (SET) to make it one of the best performing markets in Asia so far this year. From a low of 305 in January the SET soared by nearly 40%, mostly on the back of active foreign buying earlier in the year. While the market has recently slipped back on profit taking, overall investor sentiment remains fairly positive. Largely for this reason, the schedule for state enterprise privatizations is being reexamined with new enthusiasm by the Thai authorities and stock market investors.

A slew of IPO candidates from the public sector are waiting in the wings, including the Telephone Organization of Thailand, the Communications Authority of Thailand, the Port Authority of Thailand, as well as the waterworks and electricity authorities for Bangkok and Thailand's provincial regions. However, in early August, the State Enterprise Policy Committee announced that privatization of the Government Housing Bank, the Government Savings Bank and the Thai Tobacco Monopoly were being suspended indefinitely due to restructuring delays, as well as various sources of  internal opposition that is rumored to include employee resistance. In the case of the Thai Tobacco Monopoly, concern has also been expressed about allowing foreign shareholding and management influence at the state enterprise that in turn could lead to more aggressive advertising campaigns in favour of smoking. Nearly a dozen state enterprises have been earmarked for privatization over the next three years as part of the Thaksin government's aim to add THB700 billion ($16.2 billion) to the SET's market capitalization. For the January to June 2002 period, the SET's average market capitalization was THB1,985 billion ($45.8 billion).

However, it is unlikely to be smooth sailing for several of the planned state enterprise IPO's, most notably the Telephone Organization of Thailand (TOT) and the Communications Authority of Thailand (CAT). Both the TOT and CAT have yet to resolve the thorny issue of concession conversion with private sector operators, which is just one of many sticking points that could delay their privatization plans. Currently, the tentative schedule calls for the TOT and CAT to be listed in late 2002 or early 2003. Prime Minister Thaksin's directive that the TOT and CAT be merged prior to a listing on the SET was scrapped at the beginning of June following strong opposition from the respective employee unions at the two state enterprises. No doubt this has come as a tremendous relief to the underwriters for the two communications giants (Morgan Stanley and Salomon Smith Barney for the TOT; Lehman Brothers and CLSA for the CAT) who were appointed earlier this year.

One surprise could be an earlier-than-expected IPO by the Metropolitan Waterworks Authority (MWA). Current suggestions are that the MWA may decide to sell a 30% stake to the public, including retail investors, as early as the end of 2002. The urgent need to replace Bangkok's crumbling waterworks system, where some pipes are more than 100 years old, may persuade the Ministry of Finance to bring forward the MWA's IPO from the previous target date of Q42003. The MWA has yet to appoint a financial advisor pending further deliberations by the State Enterprise Policy Committee.

Daniel Nielsen works for the Brooker Group in Thailand. For more information Click Here