THAILAND saw one of the largest corporate bond issuances in the third quarter this year when Berli Jucker pcl, a company involved in consumer staples, packaging and healthcare products, completed the first issuance involving several tranches on Aug 31, raising US$1.62bil. This was followed by a further US$785.25mil in bonds completed at the beginning of this month.
The bond issuances were part of a US$6.02bil programme of bond sales, a rights issue and a private placement to refinance the company’s debt following the acquisition of Big C Supercenter pcl, which raised its debt to equity ratio to 4.98 times. In October, shareholders approved the US$494mil rights issue.
Berli Jucker, the flagship retail business of the Sirivadhanabhakdi family, whose head is billionaire Charoen Sirivadhanabhakdi, acquired French supermarket operator Casino Guichard-Perrachon SA’s 58.6% stake in Big C earlier this year and bought out the other shareholders in May via a tender offer that valued the hypermarket chain at a total of US$5.86bil.
Analysts considered the 28% premium to Big C’s closing share price on Jan 14 as expensive but noted that the acquisition will allow Charoen, who bought Singapore-listed beverage company Fraser and Neave Ltd (F&N) in early 2013, an outlet to distribute products from not only Berli Jucker but also Thai Beverage Pcl and F&N. The family owns a controlling stake in Thai Beverage, which produces Chang beer.
The family controls Berli Jucker with a 74.36% stake through TCC Corp Co Ltd, a unit of privately held TCC Group, which has interests in retail, property, financial, industrial and agricultural businesses.
Berli Jucker, one of the largest retailers in the region, expects sales to hit US$2.62bil this year, inclusive of contribution from Big C, which has a 43% market share among Thai hypermarkets, second only to Tesco Lotus, which is part of London-listed Tesco Plc. Last year, sales totalled US$1.23bil.
According to reports, Berli Jucker will use the Big C acquisition to expand into the hypermarket retail business and supply chain as well as allow the company to position itself to expand in South-East Asia. Big C acquired Carrefour SA’s Thai business in 2011.
In total, Berli Jucker owns, through Big C, 720 outlets ranging from hypermarkets to 24-hour convenience stores in Thailand.
Berli Jucker could see its Big C stores present again in Vietnam as the Sirivadhanabhakdi family, through TCC Corp, bought German cash-and-carry company Metro AG’s Vietnamese business comprising 19 wholesale stores for US$704mil earlier this year after Berli Jucker shareholders did not approve the acquisition.
There could be plans afoot to have Big C present in the Vietnamese market again by merging the Metro stores, currently known as Mega Market Vietnam after TCC Corp’s acquisition, with Big C as Big C’s Vietnamese operations had been acquired for US$1.1bil by another Thai privately-held conglomerate, Central Group of Companies, from Casino at around the same time as the divestment of the Thai stake.
> Cementing regional expansion
Thailand’s largest cement producer, Siam Cement pcl, was also active in the corporate debt front with two issuances – US$700.65mil in March and US$715.93mil in September with the proceeds to be used for refinancing maturing debt and fund future capital expenditure and investments.
Facing a weaker property market in Thailand, where demand from property development makes up half of cement sales on average, Siam Cement has in recent years expanded to Cambodia, Indonesia and Myanmar with another plant in Laos to be ready early next year. The company sells around 16 million tonnes of cement in Thailand with another 4.5 million tonnes to regional markets.
According to reports, the company’s chief executive officer/president Roongrote Rangsiyopash indicated that talks have commenced on the acquisition of cement assets in Vietnam where demand has seen double-digit growth in percentage terms.
The Crown Property Bureau, which manages the Thai monarchy’s commercial assets, owns 30.76% of Siam Cement, which was founded in 1913 by King Rama VI.
The company, which also have businesses in petrochemicals and paper, is also the second-largest local currency bond issuer with 166.5bil baht outstanding as of Sept 30.
As the kingdom’s leading cement producer, the company has a production capacity of 23 million tonnes with another 6.3 million tonnes to be added next year from plants in the region.
A September report from Fitch Ratings showed that the company’s petrochemicals business has been instrumental in widening the earnings before interest, tax, depreciation and amortisation (Ebitda) margins last year to the first half of this year. The rating agency expects a recovery in domestic demand for cement and a ramp-up in the company’s regional cement capacities to be key growth drivers next year.
It says the company has benefited from diversification, which has been instrumental in smoothening out cash flow over the past five years as when growth in the cement business helped reduced pressure on finances in 2012 or when the petrochemicals business helped boost overall Ebitda in 2015. The continued focus on regional expansion should benefit Siam Cement’s business profile over the long term.
A Morgan Stanley report noted that the company’s cement business face multiple headwinds next year on weak demand, oversupply, regional competition and higher energy costs while the margins from the petrochemicals business could be peaking.
For the current year, the company sees flat demand for cement in Thailand because of weak private investment, revising demand downwards from 3% to 5% growth year-on-year earlier even as government infrastructure spending has been ramped up since last year. Analysts say that the weak property development industry has weighed on overall cement demand.
> Banpu Power prices IPO at top of the range
Banpu Power pcl, the energy business of coal miner Banpu pcl, managed to price its initial public offering (IPO) at 21 baht per share, which is the top end of the 18 baht to 21 baht indicative range on high demand coming from local and institutional investors.
The IPO exercise raised 13.6bil baht, making it the largest listing on the Stock Exchange of Thailand this year, considered by analysts as a relatively quiet year for listings given the challenging economy with a number of companies cancelling their listing plans.
The Stock Exchange of Thailand targeted 31 IPOs this year worth 270bil baht but has fallen short, with only 23 including on the Market for Alternative Investment. These IPOs do not include infrastructure funds or real estate investment funds, of which there were four this year.
Banpu Power’s IPO comprised a public offer of 438 million shares and a preferential offer of 210 million shares to shareholders of Banpu. The company was listed on Oct 28 and rose nearly 30%, closing at 27.25 baht on its first day of trade.
The stock continues to trade above its IPO price, although it has eased off, closing 30 satang higher at 24.40 baht yesterday. The share price of parent Banpu, which has a 78.71% stake in Banpu Power, has also risen on the successful IPO and also due to the rise in coal prices.
Credit Suisse, which initiated coverage on the stock with an “outperform” call and target price of 29 baht, says in a report that the company deserves a premium valuation due to its growth profile.
Banpu Power is planning to double power generation capacity to 4,300MW by 2025 from 1,800MW now. The company owns coal-fired power plants in China, Laos and Thailand and signed a memorandum of understanding to build a 1,300MW coal-fired plant in Vietnam.
The research house expects the company’s core earnings to grow at a compound annual growth rate (CAGR) of 25% between this year and 2018 with those of peers showing a 2% decline to 21% CAGR over the same period.
It believes the company’s shareholder structure facilitates faster and more independent strategic action compared with other listed local peers.
The company also has stakes in solar power plants in China, which was acquired recently and in Japan. It is targeting for renewables to generate 20% of capacity from 3% now.
The parent of Banpu Power has lots of experience in developing power projects in Thailand and has used this expertise to develop coal-fired power plants in other countries in South East Asia and China and creating synergies with the coal-mining business.
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