Esso (Thailand) launched the biggest initial public offering (IPO) in Thailand in two years, raising a total of 8.46 billion baht (US$268 million) in April after generating sufficient investor demand.
The company sold 773.3 million in new shares, while the Ministry of Finance (MoF) sold another 72.5 million in old shares at 10 baht per share, which is above the bottom of the marketing range of between 9 baht and 13 baht. There is a greenshoe of 84.58 million shares, which if exercised in full, will bring the total deal size to equivalent US$295 million.
At 10 baht per share, a banker familiar with the deal says Esso (Thailand) is coming into the market at a 2008 P/E multiple of 6.3x, or a 15% discount to Thai Oil. According to Esso (Thailand) chairman and managing director Daniel Lyons, the price has been book-built from the feedback the company received during its roadshows with institutional investors in Asia, Europe and the US.
The offering was split between an international tranche, which was covered 7.5x and arranged by Morgan Stanley, and a domestic portion, which was subscribed 2x and handled by Phatra Securities. The public retail subscription, made through Bangkok Bank and Krung Thai Bank, was raised from the initial 161.9 million shares to 187.28 million shares in response to investors’ demand, which saw the subscription period closed in just one day after that portion was covered 2.9x.
This is the biggest IPO in Thailand since the US$656 million fund raising by Rayong Refinery in May 2006. The MoF actually has an option to sell its entire holdings of 326.25 million shares – or 12.5% of the company – but decided against it to show its support to the company and to the transaction. Another banker says the MoF also feels that the valuation is low and is not up to their expectation.
The stock had a modest performance on its first day of trading on May 6, closing at 10.50 baht. It opened at 11 baht, but dropped to 10.40 baht, before rallying to finish at 10.50 baht. About 2.64 billion baht worth of shares changed hands in heavy trading.
Manpong Senanarong, head of equity capital markets at Phatra, cites a number of factors responsible for the success of the IPO, including the commitment of Esso (Thailand) to pay a special dividend of one baht per share in June, which will come from its 2007 earnings. “The company is committed about its dividend policy since it has no capital expenditures in the near future,” he points out. “This means most of its earnings from operations will be allotted to paying its shareholders.”
Investors are also attracted by Esso (Thailand) affiliation with Exxon Mobil, which provides the company with the technological know-how, as well as operational and investment discipline. “The company likewise has a strict cost control system in place and its management team is highly-regarded in the industry,” adds Manpong.
Esso (Thailand) is one of the country’s leading integrated petroleum and petrochemical business operators with a complex refining capacity of 177,000 barrels per day. It has an aromatics plant with a capacity of 500,000 tonnes per annum of paraxylene, a solvent production unit with a capacity of 50,000 tonnes annually and a network of more than 580 Esso service stations throughout Thailand.
In 2007, Esso (Thailand) reported a net profit of 7.05 billion baht, up from only 1.57 billion baht in the previous year. Revenues amounted to almost 200 billion baht, against 195.3 billion baht in 2006. – CS
