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Equity capital markets: Bangkok SkyTrain might get Thai IPOs back on track

BTS soars on opening day; regional pipeline strong.

The record stock market debut of BTS Group Holdings in Thailand provides fresh hope of a broader revival for public offerings across the Asia Pacific region.

BTS, which operates the Bangkok SkyTrain, raised $2.1 billion, making it the largest IPO in the region this year to date. Deals have been notoriously difficult to bring to the market in recent months as companies and their advisers, wary of volatile equity markets fuelled by geopolitical and macroeconomic uncertainty, have largely opted to keep their powder dry.

But the BTS deal might prompt a long-awaited rush of listings, particularly given its strong performance on the first day of trading, when it rose by up to 17.6%. It should provide the shot of confidence needed for companies that have been reluctant to push the button on their own deals. The pipeline of deals in southeast Asia in particular, but across Asia Pacific more generally, is healthy, with several companies ready to come to market.

Damien Brosnan, head of equity capital markets syndicate, Asia, at UBS, which, alongside Morgan Stanley and Phatra Securities, acted as bookrunner on the BTS deal, says: “The offering broke new ground as Thailand’s largest private-sector IPO and first infrastructure fund. It is also the largest IPO from Asia year-to-date. While appetite for southeast Asian paper remains strong, an international tranche close to 30 times oversubscribed is a testament to investor hunger for both defensive stocks and yield in volatile markets. The international book was hugely oversubscribed, with more than 200 institutions receiving allocations and long-only accounts taking up around 70% of the issue.” Cornerstone investors, which have been a feature of most recent IPOs in Asia Pacific, once again featured heavily in the BTS deal. Opinion is divided about the benefit of such investors. The trend is for multiple bookrunners to provide investors that are a sure thing in return for a leading role on a given deal. It is akin to pay to play and is designed to soothe the concerns of companies worried about the reception they will receive on going public. The problem is that cornerstone investors also provide an imperfect test of underlying investor appetite. The size of that appetite needs to be clear in order to foster the confidence needed to launch an equity deal that is truly reliant on investor sentiment.

The public equity markets of the region have been stuttering for the past few years, with several planned offerings postponed or pulled altogether. More recently, the increasing use of cornerstones has meant more deals have been done, alleviating some of the pressure on ECM desks.

Brosnan says the structure of the BTS deal was central to its success. “Structured as an infrastructure fund, the IPO provides access to the net revenues generated from the sponsor’s exclusive 30-year concession period to operate the core BTS SkyTrain system across 23 stations in Bangkok’s Central Business District, as well as the option to acquire future projects. Business trusts and associated structures such as real estate investment trusts are becoming increasingly familiar to the investors in Asia, which, along with the success of the pre-launch cornerstone marketing process, provided further momentum for the deal,” he says.

False dawn

Earlier in the first quarter, shares in Japan Prologis Reit, a real estate investment trust established by the world’s largest owner of commercial and industrial buildings, rose more than 20% on their debut on the Tokyo stock market. The powerful trading debut for that $1 billion deal was taken at the time as a sign that Asia’s IPO market was in revival mode. But it proved a false dawn. Several follow-on and block equity offerings have successfully come to market, ensuring that equity capital markets bankers are being kept busy, if not quite in the way they might wish.

Several other deals are in the pipeline in Thailand, which is emerging as one of the bright spots, alongside the Philippines and Malaysia, in the global IPO scene.

PTG Energy, which operates almost 600 petrol stations across Thailand, originally announced its plans to pursue an initial public offering in June last year. The company aims to raise up to $150 million, which it will put towards expanding its network and fleet of tankers. According to a filing by PTG, it plans to sell 420 million shares, 91% of which will be made available to the public, with the remainder reserved for employees.

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