Thai transport minister shakes AOT up ready for listing

Thailand''s New Transport Minister Suriya Jungrungreangkit is shaking up the Airport Authority of Thailand (AOT)in preparation for its IPO early next year.

Board Changes Cut the Military's Influence at AOT. Following the Cabinet reshuffle in early October, the Thaksin Government is continuing with its efforts to jump start its state enterprise privatization programme. Recently, Transport Minister Suriya Jungrungreangkit announced significant changes to the boards of Airports of Thailand Public Co Ltd (AOT; formerly the Airports Authority of Thailand) and the New Bangkok International Airport Company Limited (NBIA), which is responsible for developing Suvarnabhumi International Airport, tentatively scheduled to open for business in autumn 2005

At AOT the most significant changes include: a) reducing the number of board seats from 15 to 12, b) removing current Royal Thai Air Force Commander and Air Chief Marshall (ACM) Kongsak Wanna as chairman and replacing him with Transport Permanent Secretary Srisook Chandarangsu, and 3) and reducing the number of representatives from the armed forces from six to three.

Three retired Air Force officers will not be part of AOT's new board. According to Minister Suriya, the AOT needed to make "changes from top to bottom" ahead of its IPO, which is now scheduled for the first quarter of next year. By increasing the number of professionals on AOT's board and reducing the influence of the armed forces, Minister Suriya is hoping to get a better price for AOT's shares.

The private sector's role on AOT's board is still limited. However, it should be noted that most of AOT's new board members were selected from the public sector (including the Ministry of Finance, the Aviation Department, the Department of Litigation, the Budget Bureau, the Ministry of Justice and the Royal Thai Police), leaving the voice of the private sector still in the minority. In fact, the only two high profile private sector board members are Suthep Suebsantiwong from Thai Airways International Public Co Limited (THAI; which is still 93% owned by the government) and Vithit Leenutpong of the Yontrakit Group.

Previously, the Thaksin Government had hoped to list AOT on the Stock Exchange of Thailand (SET) in November 2002, but this schedule was postponed due to financial market jitters and the recent terrorist bombing incident in Bali. Admittedly, the recent Cabinet reshuffle and reorganization of AOT's board also influenced the decision to delay listing.

While a specific target date for AOT's IPO has yet to be set, so far there has been no indication that other aspects of its listing plans have changed. These include selling a 30% stake to the public (70% to domestic investors and 30% to foreign investors) with the goal of raising Bt12 billion to Bt15 billion ($277 million to $347 million). A portion of these funds will be used to finance the completion of the Suvarnabhumi Airport, being built at an overall cost of approximately $5 billion.

As discussed below, construction progress of the new international airport is already falling behind schedule, thus threatening Bangkok's "gateway" status in Southeast Asia.

Credit Suisse First Boston, Merrill Lynch and the bank's Thai securities arm Merrill Lynch Phatra Securities are AOT's financial advisor for its IPO. According to Merrill Lynch Phatra, the delays in AOT's and also THAI Airways share float schedules are likely to cut its investment banking fee income in 2002 from Bt300 million ($6.94 million) to just Bt130 million ($3 million).

Board Changes at the NBIA to Promote Cooperation with AOT.The NBIA's board was also reshuffled by Minister Suriya following the resignation of its chairman, ACM Nopporn Chandaravanich, in mid-October. Moreover, Transport Permanent Secretary Srisook Chandarangsu has also been made chairman of the NBIA in order to improve coordination with AOT.

Until the recent Cabinet reshuffle, the NBIA was under the supervision of different ministers and had its own board chairman that was different from AOT's. This confused management structure is just one of many reasons why construction of Suvarnabhumi Airport has been allowed to fall behind schedule. By some estimates, parts of the new airport are as much as 30% behind schedule, with the main contractor for the terminal and concourse facilities (the consortium headed by Italian-Thai Development Public Company Limited) complaining that it still lacks sufficient design details to begin construction of this portion of the project.

Now, with clear instructions coming from Transport Minister Suriya and with both AOT and the NBIA, having the same chairman, it is hoped that further construction delays can be avoided. Minister Suriya has also been quoted saying that the delay in AOT's IPO until early next year will not affect progress on building the new airport, since the AOT has enough cash (approximately Bt10 billion) that can be spent in the interim. As long as AOT's IPO is accomplished well before 2004 there will be no cause for concern about the NBIA falling further behind on this critical infrastructure project.

In order to reassure investors about the Thaksin Government's commitment to completing the Suvarnabhumi Airport on time, Minister Suriya recently ordered a halt to expansion work at Don Muang Airport being carried out at a cost of Bt2 billion. According to Minister Suriya, expanding Bangkok's existing international airport was sending mixed signals to both investors and the airline industry.

Now that the boards of AOT and the NBIA have been revamped, the Thaksin Government's determination to both list AOT and complete the Suvarnabhumi Airport by 2005 have been reconfirmed - at least for now.

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

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