Investors look for a public offering in '99
January 20, 1999: THE
investing public is watching to see who will be the hero this year by making a successful
public offering, after both the initial-public-offering and public-offering markets were
pronounced dead in 1998.
Last year practically speaking, there was no initial-public-offering issue, as the Thai
economy slid into its deepest recession in modern history. Of the Bt126.68 billion that
was raised in the primary market in the first nine months of 1998, Bt121.71 billion was
raised through private placements and the remaining Bt4.96 billion through public
offerings, according to statistics provided by the Securities and Exchange Commission.
''This year, I think, private placement will continue to dominate the market, but the
market will watch to see who will be the hero by making a public offering,'' said Dr
Prasarn Trairatvorakul, Securities and Exchange Commission deputy secretary-general.
Siam Commercial Bank is also testing the market by planning a public offering of Bt20
billion, a sum that matches its plan to seek Bt20 billion in tier-1 capital from the Aug
14 Financial Restructuring Programme. Its public offering is expected to be initially
offered to the Crown Property Bureau, Sanwa Bank and other existing shareholders.
Thai Farmers Bank recently successfully raised capital by Bt40 billion with its highly
innovative capital securities, Stapled Limited Interest Preferred Structures, which are
considered a private placement, for minimum individual investment in securities of Bt10
million.
The Thai Farmers Bank issue, which carries a seven-year maturity, is locked into costs
of about 11 per cent, although it is paying depositors 6 per cent. The bank will have to
handle the trade-off as it puts its house in order.
''Not all banks can raise money the same way as Thai Farmers,'' said Prasarn, adding:
''If others try to issue bonds, they will need to anticipate the interest-rate trend in
order to lock in their costs. If they incorrectly anticipate the direction of interest
rates, they will have problems.''
Companies are cautious about making public offerings during this period of sluggish
sentiment, because public-offering failure would not only be a PR catastrophe but also
undermine confidence in the raising of capital in the future. With interest rates coming
down and much liquidity in the market, investor perception is gradually changing.
With short-term rates of 2.5 per cent and deposit rates between 6 and 7 per cent,
investors are more willing to take risks. Conversion of its deposits into capital
securities accounted for about half of the Bt40 billion raised by Thai Farmers Bank. Thai
policy-makers are broadly pursuing a loose monetary policy to drive down interest rates,
so that hopefully part of the Bt6.5 trillion deposited in the banking system will be
converted into equity.
''Thailand does not lack liquidity at the moment. We simply do not have enough
equity,'' said Staporn Jinachitra, a Siam Commercial Bank senior executive. ''Thai people,
particularly those who have a lot of money saved in banks, should be encouraged to invest
in Thai companies or banks. They should buy hotels, apartments or other assets, which are
very cheap now, to help stimulate the economy.''
Siam City Bank also has much liquidity. Its top management recently asked the Bank of
Thailand to let it buy between Bt20 and Bt40 billion worth of government bonds that it
could consider as tier-1 capital. By so doing it could convert its liquidity into equity,
a move that would make it unnecessary for the authorities to sell Thai banks cheaply to
foreign investors as planned.
The management of the bank now thinks that it would be a costly mistake to sell the
bank to foreign banks, because they would buy in cheaply. They believe that the
performance of Thai banks will quickly improve after recapitalisation, which will be
easier with the excess liquidity in the financial system. Siam Cement Plc, the blue-chip
construction conglomerate, is considering the possibility of refinancing its short-term
debt of Bt56 billion with a Bt30-billion bond issue. However, the company declined to
elaborate, saying only that it plans a local bond issue, which should be finalised in
March.
BY THANONG KHANTHONG
|