There's a classic BB King blues song called "Five Long Years". Maybe living with a bad woman is worse than not having access to equity-linked investment products, but one thing is for sure: Thailand's domestic investors have had the blues for six long years.
But opportunities are arising, the most interesting of late being SHIN Corporation's issue of Bt3.6 billion ($83 million) worth of debentures and warrants, listed yesterday (Wednesday) on the Thai Bond Dealing Centre and the Stock Exchange of Thailand respectively.
The five-year, zero-coupon bonds are unsubordinated and unsecured, are callable after year three and carry a spread of 140bp over Thai Treasuries. The five-year warrants, sold at Bt3.1 each, can secure up to 200 million units of company common stock at a strike price of Bt20.5 per; the exercise premium is 31% over the spot price.
Boonklee Plangsiri, chairman of the executive committee, says SHIN Corp is a holding company for Thailand's leading mobile and telecommunication companies and so it does not have a consistent cashflow stream. Therefore it had to raise cash in order to pay down its remaining Bt3 billion of debt. "We want to be a debt-free company," he says. The equity-linked solution let it take advantage of low interest rates plus an undervalued stock price.
Along with its lead manager, Merrill Lynch Phatra Securities, SHIN decided on an equity-linked structure. Merely refinancing the debt was not sufficient so it needed an equity solution. But the owners did not want to dilute their holdings right away, and were also wary of the volatile stock market. The Shinawatra family owns 47.24% of SHIN; Thaksin Shinawatra is the current prime minister of Thailand.
Boonklee says, however, that this is really an equity deal with the dilution postponed for five years. "We will be happy to see all of our investors exercise the warrant" and become stockholders. The company is confident that SHIN's stock price will increase over the next five years. The price closed Tuesday at Bt16.
This is also the first domestic deal in which the bonds are a bullet structure with a one-time payment at maturity, which Bonklee says is only possible for those few companies with a strong balance sheet. They come with a TRIS rating of A+.
Standard Chartered and Bangkok Bank are co-managers. The entire deal was placed domestically, 70% to institutions and 30% to retail.
Thailand's ultra-low interest rates are forcing domestic banks to offer cutthroat pricing to top-tier clients such as SHIN to keep them on their balance sheets. But Boonklee says the company stuck with the capital markets because the banks could not offer those discount rates out past two years, and the company needed the five-year deal to achieve a better price on the warrants, as well as to accumulate dividends from SHIN's subsidiaries in case the stock price doesn't perform as expected and in five years investors do not exercise their warrants.
Boonklee adds SHIN Corp has no reason to tap the capital markets, domestic or international, for several years, as its subsidiaries can finance themselves, and SHIN Corp's gearing is now a lowly 0.19%. Those businesses include mobile operator Advanced Info Service, satellite company Shin Satellite, free television operator ITV and internet company ADV.
Thai companies have suffered a lot since the financial crisis, but this deal proves that the top-tier names ain't singing the blues no more.