The kingdom of Thailand is no stranger to political turmoil but the recent volatility has put deal-making on pause. Thailand’s elections are scheduled for February 2 but with anti-government protestors blockading polling stations, investors are concerned that the political stalemate could drag on for months.
The protests in Bangkok have often been festive but occasionally they have also taken a deadly turn for the worse, with bomb blasts and 10 deaths to date. As a result of mounting violence, Thailand last week imposed a 60-day state of emergency.
Against this backdrop mergers and acquisitions have ground to a halt, in part because potential buyers have been reluctant to fly into the country to conduct due diligence, advisors say.
“We have seen some indications that inbound M&A has been put on hold for the moment,” said Chua Soon Ghee, managing partner for Southeast Asia at consultancy firm AT Kearney. “It has been put on hold because investors are taking a wait-and-see attitude, partly as they don’t know whether they can kick off projects and fly people into the country but also because of the uncertainty of how the politics will play out,” Chua added.
Inbound M&A activity in Thailand soared to $6.8 billion in 2013, rising more than four-fold from the previous year, according to Dealogic. The volumes were heavily driven by Japanese bank BTMU’s $5.6 acquisition of a majority stake in Bank of Ayudhya.
Inbound activity has been slow so far in 2014.
M&A bankers say that ING’s sale of its 31% stake in TMB Bank is on ice -- at least temporarily. According to one source familiar with the matter, no formal process has started. But ING has been testing the market for some time and previous reports named Mizuho Bank and CIMB as interested bidders.
Bankers say Thailand's recent political instability has cooled the ardour among ING's foreign suitors, with a possible deal now seen only likely once the unrest settles.
ING is not required to divest the asset by any deadline and is in no rush to sell on the cheap, said another source familiar with the matter. TMB's share price closed at Bt2.22 on Wednesday, having plumbed a 12-month low of Bt1.92 on January 3.
Foreign banks need government approval to take a majority stake in Thai banks and given the current impasse, a sale to a local party would be easier. ING's stake sale is also complicated by the lack of clarity over what Thailand's Ministry of Finance (MOF) plans to do with its 26% stake in TMB. (In the past, it has indicated that it is keen to sell its stake). “It’s a very different proposition to have both ING and MOF selling their stakes," said one banker.
Overall, bankers are not terribly optimistic about the prospects for inbound M&A activity. "A seller would have [to be] crazy to talk to a buyer about value now because you know everyone is just going to put a haircut on it,” said one M&A banker.
Tough year for equity-raising
Bankers are bracing for a weak year of Thai equity capital-raising, since stocks have sold off. “We’ve spoken to some CFOs and, basically, they think 2014 will be a tough year – the currency is relatively weak and corporate earnings will be affected,” said one senior Bangkok-based banker.
Last year, Thailand equity capital markets were active with $7.1 billion raised, according to Dealogic. So far this year only one major fund-raising, a $290 million bond for CP Foods exchangeable into CP All shares, was completed in January.
More companies could tap the convertible bond or debt markets this year, as stock prices have fallen. “Equity fund raising will be more challenging this year and as a result of the sell-off and political instability, we are seeing more companies raise [capital] via debt and exchangeable or convertible bonds,” said Daniel Ross, finance director for BTS Group, which operates the sprawling mass transit network in Bangkok.
Ross added that he doesn’t anticipate any major equity-raising for the group this year as it has about Bt40 billion ($1.2 billion) in cash and liquid investments from its trust listing last year. Ironically, the rail operator has been a beneficiary of the unrest – its ridership numbers have risen as six of the protest sites are along its rail line.
However, like scores of other Thai companies it faces delays in the award of new contracts, though this is expected to be a temporary. “The change in government causes a delay in the award of new contracts but, whether it's the current government or opposition party that takes over, history shows that they do go forward with awarding contracts as mass transit is a priority,” said Ross.
Public spending was seen as a big impetus for growth in Thailand after the floods but since that now isn’t taking place the country’s growth is expected to weaken. Bankers in the Thai capital are hoping for some resolution but expect no quick fixes. “This feels like it will stretch out,” said the senior Bangkok-based banker. “The last 3 months have been like water torture, very slow," he added.
Thailand's political unrest was triggered last year when Thai prime minister Yingluck Shinawatra proposed a controversial amnesty bill, which was seen as an attempt to bring her brother, ousted leader Thaksin Shinawatra, back into power.