WHA Utilities & Power prices IPO

Strong demand for IPO despite Thailand's poor performance relative to other Asian markets.

WHA Corp secured top-of-the-range pricing for the spin-off of its water treatment business on Wednesday after valuing the company at a comfortable discount to peers.

A 229.5 million share deal for WHA Utilities & Power (WHAUP) was priced at the top of a Bt25.25 to Bt26.25 range, netting Bt6 billion ($174 million).

Like many recent Asean flotations, the deal was very much a local affair with a split, which saw 68% placed with domestic institutions and retail, 21% through the entitled tranche and 11% with foreign investors. 

The foreign tranche closed multiple times oversubscribed according to observers, but allocations were concentrated to just 10 investors in total. 

Thailand has been off international investors' radar screens in recent months, following its outperformance in 2016. 

Last year, it was the best performing market in the Association of Southeast Asian Nations (Asean). This year, it has been the worst, with the SET Index up 2.08% to Wednesday's close.

However, WHAUP's parent has outperformed the index, indicating that the spin-off and accompany debt reduction, has had a positive impact. Year-to-date, the stock is up 6.75% to close Wednesday at Bt3.16 per share. 

At this level, WHA Corp is trading at roughly 9.9 times consensus forward earnings.

By contrast, WHAUP's main peer has come down in recent days, suggesting that some investors have been switching out of Thai Tap Water Supply & Eastern Resources (TWW) to take advantage of WHAUP’s IPO discount.

TWW is the most highly valued of Thailand's major utilities and is now trading around 16 times consensus 2017 earnings compared to an 11% to 14% band for the country’s listed electricity operators. Year to date it has fallen 2.8% to Wednesday’s close.

WHAUP has been priced at 12.9 times 2017 forecast earnings compared to syndicate analysts fair value assumptions around the 16 times level. 

Equity strategists say that while domestic investors are still providing a strong bid, foreign investors have pulled back because of low forecast earnings per share growth for the market during 2017.

The index is currently trading around its five-year forward average of 15 times earnings. EPFR data shows that Thailand recorded positive portfolio flows in February in contrast to January and also November, the month after the death of the country’s revered king, Bhumibol Adulyadej.

Post listing, WHA Corp will hold a 68.88% stake, while H-International (which divested 104.5 million shares via the IPO) will own 1.14%.

Proceeds are being used to re-pay debt at the parent level and fund capital expenditure at the listed company level. WHAUP is planning to build six new power plants, increasing supply from MW350 at the end of 2015 to MW540 by 2019.

Bankers said investors were drawn to WHAUP’s defensive characteristics as a utility play and captive growth profile given it has exclusive rights to sell water and wastewater treatment to WHA’s industrial estates along Thailand’s eastern seaboard.

SCB Securities was the lead underwriter for the IPO, while Citic CLSA managed the international tranche. Other domestic underwriters included RHB Securities and Bualuang Securities.

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