Bangkok Metro finally hits the market with downsized deal

Modest interest seen from international investors in the lossmaking company, but the fixed-price IPO is expected to pull through.
Bangkok Metro PLC yesterday launched its long-awaited initial public offering, but has been forced to cut the size significantly from its earlier plans. This is in response to a difficult domestic market.

Even so, the offer could be a tough sell as the company is lossmaking and isnÆt expected to be able to pay dividends for at least five years based on its current projections of passenger traffic and fare revenues û projections that were trailing behind schedule in the first half of 2006.

Long-term domestic investors are likely to be its best bet for raising the Bt3.61 billion ($96 million) it is targeting in a fixed-price deal led by joint bookrunners CLSA and Kim Eng Securities (Thailand).

ôIt is going to be a very hard sell internationally,ö one Bangkok-based analyst says. Like many other Thailand watchers though, he anticipates that the government may pull some strings to ensure the deal is carried through and that the underground system is given a proper chance of long-term success.

Bangkok Metro, which holds a 25-year concession to operate BangkokÆs only underground railway line, needs the money for working capital and to pay for five new trains as well as equipment, including automatic gates, ticket vending and card issuing machines. This is to keep up with the expected increase in passenger traffic. Hence it cannot hold off on the share sale any longer, people familiar with the situation say. About Bt1 billion of the proceeds will go towards debt repayment.

The urgency also stems from the fact that ThailandÆs Mass Rapid Transit Authority (MRTA), the government body that built the subway line has agreed to buy a 25% stake in Bangkok Metro when the IPO is completed. (MRTA has been assigned responsibility to develop three of the seven new subway lines that the Cabinet approved in June 2005.)

That investment, for which MRTA will pay Bt1 per share (equal to the nominal value) or a total of Bt2.99 billion ($80 million), needs to take place before the end of this year, notes one observer. ôSo while this may not be the ideal time for an IPO, there are corporate reasons for doing it now.ö

The deal comprises 2.76 billion shares, or 23% of the enlarged share capital including the MRTA investment, which are offered at Bt1.31 apiece. About 1.31 billion of the shares are new, while 1.44 billion will be sold by seven existing shareholders, including Ch Karnchang, who owns 40% of the company at present together with his affiliates. Among the other sellers are second largest shareholder Bangkok Expressway, Krung Thai Bank, TMB Bank and Siam City Bank.

The third largest shareholder, Natural Park, had initially planned to divest part of its 18.75% stake, but according to the listing prospectus it will not do so. The company has been quoted by the Thai press recently saying it didnÆt want to sell below Bt1.52 per share, which is what it paid when it bought shares in the company two years ago.

Back in February and March when Bangkok Metro was initially looking at launching the IPO, the talked-about deal size was around $150 million, suggesting a significantly higher price per share. That plan was interrupted because of the political unrest that led to Prime Minister Thaksin Shinawatra calling for an early general election in April and eventually stepping down from his post. The election, which failed to reach a conclusive result, was later ruled unlawful by the courts leaving the country in the hands of a caretaker government.

In July, the subway operator tried to IPO for a second time, but was again thrown off course by external events. Based on yesterdayÆs SET index close of 690.9 points, Bangkok is the worst performing market in Southeast Asia this year, having fallen about 3.5%.

Despite a slight hiccup following the discovery of explosives near the prime ministerÆs residence last week, the political backdrop do seem to have stabilised somewhat. This has triggered a modest rebound in the stock market with the benchmark SET index currently trading about 6% higher than when Bangkok Metro sought to come to market in July.

Assuming everything goes to plan, the shares will start trading in Bangkok on September 21. The international order books will close early Wednesday (September 6) - after another day of marketing in Hong Kong today and two days in Singapore on Monday and Tuesday.

According to the listing document, the company had revenues of Bt1.05 billion in 2005 and Bt689.5 million in the first half of this year, but as the revenues arenÆt yet able to cover the fixed costs it reported losses of Bt1.7 billion in 2005 and Bt821 million in the first half 2006. At the end of June, its accumulated losses stood at Bt3.66 billion ($97 million).

At present about 85% of total revenues comes from ticket fares, but this is expected to come down slightly as the three other business areas û leasing of advertising and retail space and the provision of telecommunication systems û start to generate more income.

The long-term arguments for investing in this stock include an expectation that the number of passengers will continue to increase as people become more used to this mode of transport which started operations only in July 2004. The worsening traffic congestion in Bangkok, rising oil prices and the opening of more businesses around the underground stations support that argument.

The government is also strongly pushing for the development of more public transport underground and current plans include spending Bt555.7 billion ($14.8 billion) on seven new lines by 2012.

However, the public donÆt yet seem convinced about the benefits despite the use of fare subsidies to attract more passengers. In the first half of this year the average number of passengers trailed the forecasts made by an independent adviser by 18% and the actual fare revenue was 29% below projections.

Speaking with local media the day before the launch of the roadshow, Managing Director Sombat Kitjalksana said the company expects to reach the break-even level of 280,000 passengers per day in two to three years, but will the need another couple of years to clear its accumulated losses before it will be able to start sharing its profits with investors.

In the first six months of this year, the number of passengers averaged about 175,000 per working day, but reached 194,000 per day in June. The average fare for the six-month period was Bt21.03.

After the IPO, Ch Karnchang will hold 19.56% of the company, Bangkok Expressway will have 9.99% and Natural Park will have 12%.
¬ Haymarket Media Limited. All rights reserved.
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