TOT IPO likely to be delayed

Brooker Group analyst explains why roadshows are unlikely to start at the end of this month.

The Thai Government is grappling with the critical issue of whether or not to delay the IPO of TOT Corporation Public Company Limited (formerly The Telephone Organization of Thailand), which is perhaps the most anticipated state enterprise privatization scheduled for 2002. The current schedule calls for TOT to launch IPO at the end of October, with the company's road show due to get underway between 30 September and 16 October. Yet another delay in the TOT's IPO schedule would cast a shadow over the viability of the rest of the government's plans for state enterprise IPOs at least for this year, and possibly into 2003.

In early September the Thailand Development Research Institute (TDRI) - a quasi-government think tank that has been consulted by officialdom for years on key issues related to national economic policy - issued a statement recommending that the TOT's IPO be postponed until 2003. This view was echoed by TOT's local financial advisor - SCB Securities Co Ltd (the stockbroking arm of Siam Commercial Bank Plc) - which said that if global financial markets remain as unpredictable as they are at present then TOT should delay its flotation.

From TOT itself there is still no official word on the status of its IPO schedule, although management of Thailand's largest fixed-line telephone company has said it will consider putting off presentations until stock market conditions become less volatile. The Cabinet has already given TOT final say on the timetable for its IPO, and the company has submitted the necessary documents to the authorities for an IPO at the end of October, with trading due to begin in early November.

There are several reasons why TDRI is urging the TOT to delay its IPO that go well beyond the current unsettled nature of financial markets. First and foremost is the uncertainty surrounding the conversion of more than 20 concessions granted by TOT to Thailand's private sector telecom companies, which is clouding prospects for a successful IPO.

The TDRI itself is intimately familiar with the complexities of this issue, having had its own formula for concession conversion rejected not long after the Thaksin Government came to power due to concerns that it was biased in favour of regulators like TOT and the Communications Authority of Thailand (CAT) - the state enterprise that controls Thailand's international gateways.

With concession fees representing a third or more of TOT's annual revenue, it is essential that details of concession conversion be outlined in full in order to set a fair market price for TOT's IPO. So far the Thaksin Government has shown a reluctance to tackle the delicate concession issue. Critics say the government's failure to resolve the concession issue can be attributed to its desire to maintain the status quo in order to put off the day when local telecom players will have to share the pie with new domestic competitors.

Doing away with the concession system would also help to open up the Thai telecom sector to foreign competition much sooner, with the final WTO deadline for doing so not falling until 2006. According to Sittichai Songpirikit, TOT's new president, there will be no move towards concession conversion until 2006, which is confirmation of the lack of consensus on this important issue.

Another essential component for sorting out Thailand's tangled telecom regulatory system is the creation of the National Telecommunications Commission (NTC). Actually, the NTC was supposed to have been established years ago with the brief of issuing licenses to telecom service providers as a replacement for the existing system of concessions granted by the TOT and CAT.

To date there has been little progress towards setting up an NTC that both the public and private sector could accept, with the most optimistic date that this will be achieved now drifting well into 2003.

As if TOT did not face enough problems concerning its IPO schedule, TelecomAsia Corporation Public Co Ltd (TA) filed a claim with Thailand's Arbitration Office against TOT in late August, something that would never have happened had TOT not gone through the corporatization process at the end of July 2002. TA claims that it is owed Bt6 billion based on the terms of its concession that grants it a share of the mobile phone access charges collected by the TOT from mobile phone operators over the past 10 years.

In Thailand, mobile phone operators must pay an access charge to TOT when using its network, and as the country's largest private sector fixed-line operator (covering metropolitan Bangkok), TA is supposed to have received a share of these fees.

TA's gutsy "poke in the eye" claim also has the company asking for Bt700 million per month in compensation until its arbitration case with TOT is settled. In addition, it is rumoured that TA is planning to file a series of lawsuits against TOT with the Administrative Court on various other issues in the coming weeks.

With TOT facing the possibility of a string of lawsuits from TA (and perhaps lawsuits from other private sector telecom operators), it now appears quite likely that its IPO schedule will be delayed well into 2003.

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