True Telecommunications Growth Infrastructure Fund (True GIF) has launched the management roadshow for its initial public offering and is aiming to start the institutional bookbuilding on Wednesday, subject to a final approval from the Thai regulators.
The fund, which is being set up by Thai telecom operator True Corp, will have a total value of Bt58 billion ($1.8 billion) and, since the sponsor will subscribe to at least 18%, the maximum deal size targeted to public investors will be about $1.48 billion.
The sponsor may buy as much as one-third of the fund, and sources say it may take up a greater portion either if there is muted interest from other investors or if there is very good interest, in which case one may suspect that the fund will trade up as investors who failed to get a meaningful allocation in the IPO try to buy in the aftermarket.
The base case is that True Corp will take up 18%, however. Half of the rest will be offered to domestic and foreign institutions, while half will go to Thai retail investors.
The fund will offer new units at a fixed price of Bt10 apiece, which translates into a 2014 dividend yield of 8.8%.
While it is unusual for an IPO to be done at a fixed price, several block trades have come at a fixed price recently. In some of those cases, the bookrunners have chosen to use a fixed price to focus on trying to increase the number of shares on offer without having to make concessions on the price. In this case, it simply removes an element of uncertainty and allows the bookrunners to build the “best possible book without worrying about the price,” one source said.
Given the current political unrest in Thailand, that may be a smart move. Bt10 per unit is said to be the maximum price that True was willing to pay for its portion of the fund.
True GIF will take over part of True Corp’s telecom infrastructure, including towers and fiber optic cables, and its principal mandate will be to invest in infrastructure businesses that have the potential of long-term growth to ensure regular distributions to its unitholders.
True Corp, which is controlled by the country’s richest man, Dhanin Chearavanont, will continue to benefit from the telecom infrastructure, receiving dividend income from its investment in the fund. At the same time, it will lease back part of the infrastructure assets so that it can continue to provide telecom and broadband services to its customers.
According to an earlier announcement, the 15-year lease will cost a maximum of Bt55 billion.
An infrastructure trust, which is similar to business trusts in other jurisdictions, makes a lot of sense for True, since its shareholders are currently not benefiting from the revenue growth generated from the network as a lot of it is eaten up by the large interest payments on its debt.
The interest expense amounted to about Bt6.6 billion last year, which together with a 29% increase in operating costs led to a net loss of Bt7.4 billion. Total revenues increased by 24% to Bt89.3 billion.
True GIF will be only the second infrastructure fund in Thailand after BTS Group opened the door for this new asset class with its $1.4 billion IPO in April. BTS Group operates the Skytrain system in Bangkok and the BTS Rail Mass Transit Growth Infrastructure Fund (BTS GIF) is backed by the cash-flow from the Skytrain ticket sales.
BTS GIF proved highly popular with investors and gained as much as 12% in the first few weeks after the trading debut. But once the world started to worry about tapering and slowing growth in late May, it – and most other yield plays – fell back. Those concerns have recently been compounded by renewed protests in Bangkok and attempts to oust the prime minister, and yesterday the fund closed 12% below the IPO price at Bt9.50.
Despite the rising yield environment, sources say there is quite a bit of interest in Thai infrastructure funds, which are benefiting from the fact that they are tax free both for issuers and investors.
True GIF will hold a total of 11,845 telecom towers, of which 6,000 will be new towers that are being built to handle a new 3G-2.1GHz license and which the fund will acquire as they are being completed within the next two years. It will lease the remaining 5,845 towers as well as 47,250 kilometres of fiber optic grid and related transmission equipment and will benefit from the net revenues generated from these assets.
It will also buy 5,112 kilometres of fibre optic grid and a broadband system located in provincial areas of Thailand.
When True Corp first announced plans for the infrastructure fund in July, it said the fund would hold about 13,000 telecom towers. However, some towers that are subject to a dispute with CAT Telecom will not be included in the fund and will be replaced by the 6,000 new towers, a company representative told the Thai media last week.
The fund will rent capacity on its towers and through its cables both to True and other telecom operators, in line with the Thai government’s infrastructure sharing policy.
“As the fund management company of True GIF, we anticipate a strong growth opportunity from the Thai telecom industry in the current free trade era where new operators are entering the market and the demand for telecom infrastructure is increasing, said Jotika Savanananda, president of SCB Asset Management, in a release issued last week. “We believe this is the right moment for the establishment of a telecom infrastructure fund,” she added.
SCB Asset Management, which is part of the Siam Commercial Bank group, will be responsible for the day-to-day management of the fund.
Assuming the final regulatory approval does come through as expected, the institutional bookbuilding will start on Wednesday and continue until December 9. The retail offering will open after that and the trading debut is scheduled for December 27.
True Corp is the only fully-integrated, nationwide telecom operator in Thailand with about 28.2 million subscribers across its fixed-line, mobile, broadband and pay-TV networks. It is 63.3% owned by the Chearavanont-controlled Charoen Pokphand Group and its associates and provides mobile services mainly under the TrueMove and TrueMove H brands.