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Success of CoCo issue a relief to Thai gloom


HONG KONG Cogeneration Plc (CoCo) last week successfully launched its US$100 million (Bt2.5 billion) Euro-convertible bond issue on the international financial markets, good news not only for the Thai utility company, but also for Thailand as a whole.

At a time when a growing number of negative stories are appearing on Thailand's macro-economic woes, CoCo received an overwhelming response from international institutional investors, who oversubscribed the issue to $580 million. This led CoCo to increase its ECD issue to $121 million.

''People are getting excited about Coco's success. It means there is room for quality Thai firms to tap the international markets, which are more selective," said Tira Wannamethee of JP Morgan from London, following completion of a roadshow which took CoCo to Asia, Europe and the United States.

JP Morgan was lead manager of the CoCo issue, while SBC Warburg and Salomon Brothers were co-lead managers.

The bonds, with a coupon interest rate of 2.5 per cent, have a maturity of 10 years, with a put option in year five to yield 80 basis points over five-year US Treasuries. The bonds will have a conversion premium of 14.9 per cent, and will be callable by the company under certain conditions in the year 2000.

The ECD issue marks the first ever by the power company and the first from a Thai company since the summer of 1996. Last year, 11 Thai firms raised funds from overseas markets through ECDs worth a combined Bt41.07 billion, compared to four companies in 1995 which raised a total of Bt7.93 billion through ECDs, according to a Securities and Exchange Commission report.

The acceleration of the stock market decline since the second half of last year has created unfavourable market conditions for new ECDs issued by Thai firms. Only highly selective, quality firms will be able to continue to tap the foreign funds.

Tira said CoCo's success could be attributed to the underlying quality of the integrated utility company, which provides electricity, steam and industrial water to its customers in Map Ta Phut and sells electricity to the Electricity Generating Authority of Thailand under the Small Power Producers programme. CoCo will use the proceeds to fund its Phase III expansion, which will increase its electricity generating capacity from 300 megawatts to 770 megawatts.

The ECD issue also benefitted from the strong US bond market and institutional bond investors, who had an appetite not only for the ECD's potential on the equity side, but also for its solid bond content, Tira said.

The lead managers also targeted equity, fixed bond and convertible bond investors on three continents for CoCo's issue, which was eventually oversubscribed to $580 million. Institutional investors for the issue came from the UK, Switzerland, US, Germany, Hong Kong, France, Singapore and other countries.

Another investment banker in Hong Kong said until the middle of last year Thai companies could raise any amount of money they wanted in international markets, but now are shying away from the markets due to nervousness over Thailand's macro-economic instability.

Bangkok Bank and Thai Farmers Bank succeeded earlier this month in raising $300 million in subordinated Yankee bonds and $125 million in floating rate certificates of deposit, respectively. The Bangkok Bank issue was lead managed by JP Morgan and Merrill Lynch, while the Thai Farmers Bank issue was lead managed by ABN Amro Bank. Thai Farmers clinched a very good deal from its five-year FRN, mustering Libor plus 27 basis points, a rate that earned ABN Amro Bank almost nothing, the Hong Kong-based investment banker said.

For second-tier Thai banks, the investment banker added, their costs of funds should rise by around 10-20 basis points.

''Krung Thai Bank has reportedly postponed its overseas fund raising exercises because of market jitters," the investment banker said.





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