Transcript SIF 2 presentation - Feb 12, 2001

Siam Investment Fund II
Investment Committee Meeting :
 Thai Economy
 Thai Stockmarket
 Deal List
Bangkok : 12 February 2001
Contents
•
Thai Economy
 Recent performance
 Outlook
•
Thai Stockmarket
 Recent performance
 Outlook
•
Deal List







Pranda Jewelry
Siam Continental Cable
Loxley Business IT
Talad Thai
Lao Brewery
Bangkok Airways
Others
2
Thai Economy
3
Thai Economy : Recent Performance
GDP by Industry
Real GDP Growth
Quarter
00Q3
00Q1
99Q3
99Q1
98Q3
98Q1
97Q3
97Q1
00Q3
00Q1
99Q3
99Q1
98Q3
98Q1
97Q3
97Q1
96Q3
96Q1
95Q3
95Q1
94Q3
94Q1
-20
96Q3
-15
96Q1
-10
95Q3
-5
95Q1
0
94Q3
5
Growth Rate
Growth Rate
10
M anufacturing
Construction
Services
40
30
20
10
0
-10
-20
-30
-40
-50
94Q1
15
Quarter
 Overall economic activity has continued to slow after the sharp pick up from 2Q98 to
3Q99.
 The post-crash trends in the economy are replicated elsewhere in Asia, though
Thailand’s trough was deeper and the pace of the recovery hampered by the scale of
the problems in the banking sector
 The recent slowing in the economy and a desire for change contributed to the losses of
the Democrat Party in the recent election.
 In office, the Democrats pursued a policy of gradual economic and political reform.
4
Thai Economy : Recent Performance (cont.)
GDP by Expenditure
Export and Import Growth
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
50%
Growth rate
Investment
40%
Export
30%
Import
20%
10%
0%
-10%
-20%
 Investment activity is again
weakening after the recovery through
1999.
 The investment rise in 1Q00 reflected
factory re-tooling plus aircraft
purchases
 BOI approvals have been strong
(with a rising share of 100% owned
Thai applications)
00Q3
00Q1
99Q3
99Q1
98Q3
98Q1
97Q3
97Q1
96Q3
96Q1
95Q3
95Q1
94Q3
Quarter
Quarter
-40%
94Q1
00Q3
00Q1
99Q3
99Q1
98Q3
98Q1
97Q3
-30%
97Q1
Growth Rate
Consumption
 Exports remain a key driver
 Import growth has recently begun to
outpace export growth
 The Trade and Current Account
positions are strong. For 2000, the CA
surplus represented 7% of GDP
5
Thai Economy : Recent Performance (cont.)
Cement Growth
Car S ales
20%
10%
90%
Percentage Growth
60%
30%
0%
0%
-10%
-20%
-30%
-40%
-50%
-30%
Oct-00
Jul-00
Apr-00
Jan-00
Oct-99
Jul-99
Apr-99
Jan-99
Oct-98
Jul-98
Apr-98
Dec-00
Oct-00
Aug-00
Jun-00
Apr-00
Feb-00
Dec-99
Oct-99
Aug-99
Jun-99
Apr-99
Feb-99
Dec-98
-60%
Jan-98
Annual percentage change
120%
 Domestic demand growth remains patchy (mobile phone sales have been strong,
sales of construction materials have been weak, car sales were strong but growth
has tailed off)
6
Thai Economy : Recent Performance (cont.)
Bank Loan and Deposit Growth
NPLs (% of Loans)
Commercial Bank Deposit
50%
Commercial Bank Loan
Percentage of Loans
40%
Percentage Growth
60%
30%
20%
10%
0%
40%
20%
-10%
 Transfers to Asset Management
Companies have accelerated the
decline in reported NPLs (but
remain in the background)
 Loan quality concerns persist,
especially in relation to relapses
 The new government is talking of
relaxing capital requirements and
NPL classifications
Sept-00
Jul-00
May-00
Mar-00
Jan-00
Nov-99
Sept-99
Jul-99
May-99
Mar-99
July-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
Jan-97
Jul-96
Jan-96
 Bank lending growth is still negative
 The appetite to lend has been
weakened by difficulties in
identifying quality borrowers and the
burden of NPLs.
 There is disappointment with the
bankrupty and foreclosure laws
Jan-99
0%
-20%
7
Thai Economy : Recent Performance (cont.)
MLR and Inflation Growth
Thai Baht/$ Exchange rate
Baht
M LR
Inflation Growth
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
46
44
42
40
38
36
34
Oct-00
Jul-00
Apr-00
Jan-00
Oct-99
July-99
Apr-99
Jan-99
Oct-98
July-98
Apr-98
Jan-98
Oct-97
July-97
Apr-97
Jan-97
32
 Inflation and interest rates have eased
eased
 A (more independent) Bank of
Thailand has introduced inflation
targeting
30
30/12/98
30/5/99
30/10/99
30/3/00
30/8/00
30/1/01
 The Baht exchange rate stabilised after
a steady easing through most of 2000
 In recent weeks, the Baht has gained
as the US$ slipped against the Euro
8
Thai Economy : Recent Performance (cont.)
% YoY
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Electricity Consumption
Exports
Imports
Bank Lending
1.5
15.1
26.6
-7.5
-1.3
22.6
36.5
-7.1
-2.3
24.9
41.2
-7
1.6
20
24.4
-11.7
0.7
15.5
36.6
-10.6
-2
18
16.8
-11.2
Manufacturing Production
Car Sales
Cement Sales
CPI
8.8
6.3
-6.6
2
5.1
24.1
-16.8
2
6.7
1.3
-11.1
2.2
4.5
-15.4
-5.9
2.3
7.7
14.3
5.3
1.7
3.7
10.2
-8.8
1.7
MLR
Baht/US$
CA Balance (US$m)
Official Reserves (US$bn)
Fixed Dep Rate(bn)
NPLs
8.50%
39.1
156
32.1
3.5
32.0
8.50%
40.2
1094
31.9
3.3
31.3
8.50%
40.9
556
32.2
3.3
31.2
8.25%
41.9
620
32.2
3.0
22.8
8.25%
43.2
461
32.2
3.0
22.5
8.25%
43.1
870
32.3
3.0
18.0
9
Thai Economy : External Environment
•
Deteriorating external demand



•
Lower US interest rates (and oil prices) are pluses for emerging
e
c
o
n
o
m
i
e
s



•
US economic slowdown implies weaker demand for exports, though shape/extent of
s l o w d o w n
r e m a i n s
u n c l e a r
There have been concerted efforts by the Fed to engineer a soft landing in the US (a plus
f
o
r
e
m
e
r
g
i
n
g
A
s
i
a
)
Post-97, intra-regional trade has expanded, softening the potential impact of a US
s
l
o
w
d
o
w
n
US$ to remain subdued (with pressure off regional currencies)
S l o w d o w n
i n
c a p i t a l
f l o w s
t o
t h e
U S
N o
u p w a r d
p r e s s u r e
o n
i n t e r e s t
r a t e s
China economy opening up in preparation for WTO entry
10
Thai Economy : Domestic Environment
•
Thailand has reasonable prospects for domestic demand
 We expect a fiscal stimulus from the incoming government, with :



A rise in the fiscal deficit to 5% of GDP over the next two year (from 2.3% in
2000)
A t a x r e d u c t i o n f o r l i s t e d c o m p a n i e s (30% t o 25%)
Increased allowances for housing and education
A d e l a y i n t h e i n c r e a s e i n V A T f r o m 7% t o 10%
 The proposed national Asset Management Company will remove the NPL
overhang and provide a base to kick-start bank lending (assuming “quality”
l o a n
d e m a n d
r e s p o n d s …
a
b i g
i f )
 Rural consumer “confidence” will receive a boost from the proposed debt
moratorium from farmers, a Bt1m payment to 70,000 villages and the setting
u p
o f
m i c r o - c r e d i t
i n s t i t u t i o n s
11
Thai Economy : Domestic Environment (cont.)
 The uptick in the stockmarket (notably bank shares) to create a wealth effect
 The PM-elect has said he will renegotiate the debt repayment schedule with the
IMF
 The new government intends to kickstart privatisation, focusing on the sale of
shares in THAI, listing Thai Oil Power and corporatisation of CAT and TOT
 The new government will finalise conversion of telecom concessions and review
previous “pork barrel” concessions
 The new government is expected to review pending legislation, including :
 Bankruptcy Law
 State Enterprise Corporatisation Law
 Foreign Business Law
 Much depends on confidence returning
12
Thai Economy : Fundamental Risks
 There is a questionmark over funding the fiscal stimulus/bank bail out
 An increased fiscal deficit may undermine Thailand’s credit rating (raising
offshore borrowing costs). Public debt represents 55% of GDP (though the % of
foreign debt and % of long term debt in the private sector has fallen
s
u
b
s
t
a
n
t
i
a
l
l
y
)
 There is potential for the Baht to weaken on fiscal concerns
 The US economy may encounter a hard landing
 Thaksin may be ejected (within 6 months) as prime minister on an adverse
r u l i n g
f r o m t h e
c o n s t i t u t i o n a l
c o u r t
 During campaigning Thaksin pledged to guard Thai business against “unfair”
competition from foreigners. There is already discussion of using planning
regulations to deter the expansion of hypermarkets. This could impact FDI.
13
Thailand : Summary Economic Outlook
Overall economic activity may exceed the BoT’s recent (downward) revised
expectations, though the uptick will not be material. The underlying trends are
moderate economic growth, subdued inflation and (relatively) low interest rates:







GDP growth in 2001 of 3-4.5% (against 4% in 2000)
Exports to grow 7-11% (19%)
Imports to grow 13-17% (31%)
CA surplus to narrow to US$8bn/6.4% of GDP (from US$9bn/7.3%)
Inflation to remain subdued at 1.5-2.0% (1.6%)
Lending rates to remain steady with MLR at 7.75%-8.25% (8.25%-8.5%)
Baht/US$ to remain in a narrow range Bt42-Bt46 (Bt37-Bt44)
14
Thai Stockmarket
15
SET Index - Volume
Set Index
Volume
600
U.S. rate increase
3500000
BBL increases reg.
cap
500
3000000
NASDAQ falls
2500000
Election
announced
400
Election
2000000
NPL concerns
300
1500000
Technology rally
200
NPL concerns
Oil price concerns
Crisis
in Phil.
1000000
100
30/1/01
12/12/00
24/10/00
6/9/00
20/7/00
2/6/00
11/4/00
23/2/00
6/1/00
16/11/99
29/9/99
13/8/99
24/6/99
7/5/99
15/3/99
26/1/99
4/12/98
19/10/98
2/9/98
16/7/98
0
500000
0
16
The Stockmarket : Recent Performance (cont.)
Index
30-Sep-00 31-Dec-00 % Change
% Change
Latest % Change
A
B
15648.98
15095.53
-3.5%
-3.6%
16099.82
6.7%
6.7%
421.336
416.321
-1.2%
-10.3%
416.325
0.0%
2.2%
KLSE Composite
713.51
679.64
-4.7%
-4.7%
722.69
6.3%
6.3%
KOSPI
613.22
504.62
-17.7%
-27.4%
596.54
18.2%
18.1%
PHS Composite
1434.49
1494.5
4.2%
-14.8%
1686.28
12.8%
13.8%
Singapore Straits Times
1997.03
1926.83
-3.5%
-3.2%
1961.52
1.8%
1.0%
Taiwan
6432.36
4743.94
-26.2%
-30.4%
5680.06
19.7%
22.3%
277.29
269.19
-2.9%
-5.7%
332.54
23.5%
25.6%
NASDAQ
3672.82
2470.52
-32.7%
-32.7%
2694.53
9.1%
9.1%
S&P 500 Index
1436.51
1320.28
-8.1%
-8.1%
1364.17
3.3%
3.3%
Hang Seng
JSX
Thailand SET
 L e a d i n g
 S t r o n g
A-B (US$ based)
C
% Change
T I P
m a r k e t
s h o w i n g
i n
B-C (US$ based)
i n
2001
4Q00
y t d.
17
The Stockmarket : Recent Performance (cont.)
Index
SET Index
Agribusiness
Banking
Building & Furnishing
Chemical & Plastics
Commerce
Communication
Electronic Components
Energy
Entertainment
Finance
Property
(4/1/2000)
(9/10/2000)
% Change
(Latest)
% Change
Index A
498.46
51.47
322.23
2736.26
301.01
2040.62
95.44
996
3138.68
73.15
1715.63
55.61
Index B
261.29
42.09
138.37
1207.97
134.42
1405.12
47.12
589.48
2491.9
40.77
616.07
24.71
(A-B)
-47.6%
-18.2%
-57.1%
-55.9%
-55.3%
-31.1%
-50.6%
-40.8%
-20.6%
-44.3%
-64.1%
-55.6%
Index C
311.25
41.69
179.89
1466.28
114.15
1631.96
62.09
656.04
2792.16
46.95
802.47
29.63
(B-C)
19.1%
-1.0%
30.0%
21.4%
-15.1%
16.1%
31.8%
11.3%
12.0%
15.2%
30.3%
19.9%
 Banking and Finance Sectors lead market lower though Jan-Oct 00
 Then lead recovery (with communications sector)
18
Thai Market Outlook : Neutral to Positive
 Reasonable prospect of moderate economic growth (even if US slowdown is worse
t h a n
c u r r e n t
c o n s e n s u s )
 C o r p o r a t e
e a r n i n g s
f l a t
 Zero EPS growth projected in 2001 after a 200% plus jump in 2000 from a
low base (ex-banks).
S c o p e f o r g r o w t h i n 2001
 P
o
l
i
t
i
c
s:
 A d o m i n a n t s i n g l e p a r t y i n p a r l i a m e n t ( f o r t h e 1s t t i m e )
 Opportunity for decisive policy implementation (and responsibility)
 S
t
a
b
i
l
i
t
y
 New government to provide relief to banking sector (laying foundations for a
r e s u m p t i o n
i n
n e w
l e n d i n g )
 Prime Minister designate has significant telecommunications interests
 M a r k e t
v a l u a t i o n s
a r e
m o d e s t
 C u r r e n t
y e a r
P E
o f
12x
( e x - b a n k s )
19
Thai Market Outlook : Neutral to Positive (cont.)
 Foreign investors are underweight Thailand (though MSCI is due to announce a cut
in Thailand’s weighting in June. Implementation will be in November)
 There is the possibility of an upward re-weighting in the MSCI weighting if
NVDR’s are included in the float calculation)
 Asian stockmarkets could attract funds given a not, unsatisfactory economic
outlook, low interest rates and a shift of investor interest from technology
 Valuations compare favourably with the US (after slide in Asia in 2000)
 Improved risk/reward profile of emerging markets (in relative terms)
 Global emerging market investors are expected to give greater focus to trends in
domestic demand and progress in restructuring in individual economies
20
Thai Market Outlook : Neutral to Positive (cont.)
 Ample scope for strategic shift in domestic savings from (low yielding) bank
d e p o s i t
t o
s t o c k s / b o n d s
 Retail investors encouraged by recent market uptick
 A c c e l e r a t i o n
i n
p r i v a t i s a t i o n
 Scope for Thailand to enjoy outperformance relative to the region. That said, if the
recent foreign buying proves short-term, selling pressure will be correspondingly
g
r
e
a
t
e
r
 Upside potential if US economy enjoys soft landing
 T
h
e
r
i
s
k
s
a
r
e
: The “honeymoon” ends early, with doubts cast over the ability of the new
g o v e r n m e n t t o t u r n r o u n d t h e e c o n o m y
 O v e r s e a s s e l l i n g p r e s su r e i s h e i g h t en e d b y r e c e n t p u r c h a s e s
21
Deal List
22
Pranda Jewelry
Introduction
 Thailand’s largest jewelry manufacturer and exporter.
 The company targets low to medium range coloured gem/diamond jewelry in
gold/silver settings, for the mass market. Major customers include QVC, a 24 hour
TV shopping network in the U.S.
 Key competitive advantages are : A track record in of delivering large volumes of a consistent high quality
 A large, well trained pool of skilled labour
 Government support of the export sector in Thailand
 Pranda has a capacity of 5m pieces p.a. through four manufacturing plants (three in
Thailand and one in Vietnam).
 The company has created brand names in each product category (which it aims to
build through a reputation in design, quality and punctual delivery).
 Estimated 2000 revenues of B2.2bn / US$56m (Bt2.2bn/US$60m in 1999)
23
Pranda Jewelry (cont.)
Introduction (cont.)
 PRANDA is listed on the SET (with a market cap. of Bt625m /US$15m).
 85% of the shares are held by the Tiasuwan family (which also manages the
company).
 The company encountered severe financial problems in the wake of the July 97 crisis,
given exposure to foreign currency loans, excessive inventory and a drop in demand.
 The company is in debt restructuring (which includes rescheduling, a proposed debt
write off and an equity injection). Total ST debt was Bt1.7bn.
 Aside from seeking a debt write off,steps taken by management to counter the
business downturn include : Inventory collection and recycling
 Downsizing local and overseas subsidiaries
 An increased emphasis on exports.
24
Pranda Jewelry (cont.)
 The company is projecting modest sales growth of 6% p.a. for the next five years, a
steady 40% gross margin with an expanding net margin (with lower interest costs
and a tight rein on SGA).
 Operating Income is projected to rise from Bt168m in 2000 to Bt390m in 2006.
Transaction Overview
 The company is seeking to raise Bt130-200m (US$3-5m) in equity, which will be
used for debt reduction (through a “Dutch” auction).
 The amount of the equity injection depends on the outcome of debt restructuring
plan. The original equity requirement figure was Bt400m.
 The debt restructuring terms are due to be finalised in February.
 The adviser is Nava Vickers Ballas (though Finansa has maintained close, ongoing
ties with the company for the past four years)
25
Pranda Jewelry (cont.)
Transaction Overview (cont.)
 A share price chart is shown below. Trading in the shares has been very thin (16,000
shares traded in January between Bt13.5-14.5).
 The pricing of new equity is expected to be between the current share price and the
book value (Bt21, before adjustment for debt forgiveness)
Share Price
Baht
20
18
16
14
12
10
8
6
4
2
0
30/6/98
30/11/98
30/4/99
30/9/99
29/2/00
30/7/00
30/12/00
26
Siam Continental Cable (SCC)
Introduction
 SCC manufactures electrical wire and cable under the “Continental” and “Crown”
trade names. The target customers are both government projects and private users.
 Khun Thwatchai Prueksathaporn, the current chairman, inherited the cable business
from his father and established Siam Continental Cable in 1989. He has an
extensive experience in the wire and cable business.
 The company owns two factories: one in Bangkok and one in Rayong. The second
factory was granted an 8-year tax privilege from the Board of Investment.
 The lists of the products include:
 Building wire, flexible wire, electrical cable made from copper wire or
strand insulated with PVC.
 Automotive electric wire
 Bared copper wire
 Non-insulated aluminum wire
 Steel reinforced non insulated aluminum wire
 General purposed aluminium wire
 Electrical grade PVC pallets.
27
Siam Continental Cable (cont.)
Introduction (cont.)
 All of the company's products meet the requirement of the “Thai Industrial
Standard” no. TIS 11-2531 granted by the Ministry of Industry.
 The total value of the domestic electrical wire and cable market is approx. Bt13bn
and is growing at around 10% p.a.. Of the total domestic market, 80% is made up
by high voltage aluminium wire and the rest is household copper cable.
 SCC ranks 5th in the industry (where political connections/delivery/(localised)
specifications are strategic advantages for domestic companies)
 On completing the second factory, the company planned to draw money from an
approved syndicated loan of Bt634m, to finance operations. Unfortunately, all of
the participating banks and financial institutions were closed down by the
government.
 The Company’s turnover peaked in 1996 at Bt469m (US$19m) declining to Bt32m
(US$0.7m) in 2000(E). The collapse was mainly due to a lack of working capital
and lack of funds to support a letter of guarantee from the banks to tender for
sizable projects from State Enterprises.
28
Siam Continental Cable (cont.)
Transaction Overview
 The Company is seeking to raise Bt300-400m to restructure debt as well as to fund
its working capital.
 Currently, the Company is in default and has outstanding debts of Bt700m. It is
understood that the Bt700m can be bought back at c.Bt300m.
 It has not yet appointed a financial advisor.
 An incoming investor is in a strong position to negotiate, given the financial
pressure on the company and the urgency to raise funds
 A satisfactory restructuring may well create a viable and attractive business.
 Likely exit through an IPO in 2003/4.
29
Loxley Business IT (LOXBIT)
Introduction
 A private system integrator, 100% owned by Loxley Plc. (a listed conglomerate with
links to the Lamsam family of Thai Farmers Bank)
 Major companies in the LOXBIT group:
 Loxbit (targeting customers in the private sector) US$17m sales, US$0.4m net
profit in 2000
 PCC (targeting the public sector) 100% owned, US$12m sales, US$0.8m net
profit in 2000
 Point Asia 41% owned. A leader in ISP / web portal / ASP/ e-commerce in
Thailand.
 Loxbit is focused mainly on the Telecommunication and Banking sectors with key
competencies in data communication, transaction automation and electronic payment
systems.
 Loxbit's business is split approximately 70% hardware, 30% services. In future, there
will be a greater emphasis on services.
 Key competitive advantages are: Existing customers tend to be repeat buyers (and require ongoing servicing)
 Experienced management (ex. IBM 10-20 years of experience)
 150 experienced technicians
 SingTel acquired 31% of PointAsia for US$30m in early 2000. Plans to list PointAsia
were dashed by the collapse in internet valuations.
30
Loxley Business IT (cont.)
Transaction Overview
 Seeking to raise US$10mm in equity or a convertible instrument
 Proceeds will be used for:
Loxbit debt repayment : US$ 4.3 million.
Loxbit working capital : US$ 2.2 million
PCC working capital : US$ 3.5 million
 The company has proposed a 21.4% stake in LOXBIT for US$10m (negotiable)
 Pricing implies 20-30x P/E ratio (year 2000)
 Value is only attributed the major revenues making companies (Loxbit, PCC, Point
Asia). Zero valuation is given to the small subsidiaries (Loxdata, OSI, etc.)
 Exit : Potential SET listing within 2 years
31
Thai Agro Exchange (Talad Thai)
Introduction
 Thailand’s largest wholesale market for agricultural products with an estimated 70%
market share.
 The company opened the market in Nov. 1995 .
 Talad Thai serves as a marketing, logistics center for farmers, wholesalers, and
retailers.
 Close to the Ring Road around Bangkok, the market is conveniently located
conveniently for access by trucks from all over Thailand.
 Currently, the market accommodates 8,000 vendors and 5,000 truck deliveries a day
with a daily turnover of Baht 2-3 million.
 Talad Thai has been developing property on the 500 rai (80 ha) site (such as shop
houses).
32
Thai Agro Exchange (cont.)
Introduction (cont.)
 The economic crisis in 1997 slowed its operation and triggered financial
problems.
 The company successfully completed its debt restructuring with reduced interest
rates, a debt haircut and extension of repayments.
 In 1999 the company generated Bt 246m (US$ 6.1m ) revenue from the market
operations and Bt 82m (US$ 2m) from the sales of shop houses on the site.
 The company booked a profit of Bt 98m (US$2.5m) in 1999.
 Around 60% of the shares are held by the Angkhawatana family.
 The company plans to list on the stock exchange of Thailand in 2002 and is now
in the process in selecting a financial advisor.
33
Thai Agro Exchange (cont.)
Transaction Overview
 Around 30-40% of the company is available to new investors,of which 17.5% (Bt
350m=US$ 8.3 m on a book value basis) is new shares and the balance is from
existing shareholders.
 One of the existing shareholders is fund managed by Nikko. This fund holds a 5%
stake and is looking to sell as the fund is maturing.
 The new funds will be used for the construction of cold storage and food processing
facilities in the market.
 The company is currently revising its financial projection in the light of the
completed debt restructuring.
 Exit would most likely be through an IPO.
34
Lao Brewery
Introduction
 Lao’s first and only brewery , established in 1971. In 1993, the government granted
 Lao Brewery a 20 year sole manufacturing concession,
 51% of the company is held by Loxley /Italian Thai Development (both listed
companies in Thailand) and 49% is held by the Lao Government (Ministry of
Finance)
 Lao Brewery has an annual brewing capacity of 80 m litres and a bottling capacity of
60 m litres.
 90% of output is in bottles, 8% in draft kegs, and 2% in cans.
 Sales reached 50m litres in 2000 and are forecast to rise to 80m litres by 2005 (after
expansion of the bottling line)
 Current consumption of beer in Laos is c. 9.5 litres per capita, versus 13-14 liters per
capita in Thailand.
 There is growth potential in Laos in the provincial cities. (60% of sales are currently
in Vientiane)
 Revenues for year 1999 and 2000 were US$19.6 m and US$31.1 m respectively.
Net profits were US$8.5m and US$13.1m respectively.
 Approx. 70% of net income is paid out as dividends on an annual basis. For 2000,
Loxley/ITD will receive around US$4.5m.
35
Lao Brewery (cont.)
Introduction (cont.)
 Under AFTA, beer tariffs in ASEAN will reduce by 2006. This will intensify the
competition for Lao Brewery.
 Almost all of the sales are made for cash.
 Lao Brewery is debt free.
 There is a complex tax sructure (with four kinds of tax). The MoF receives (100%
of the ) tax and (49% of the ) dividends, implying a potential conflict.
 There is a high import content (in raw materials).
 Historically, cost and tax increases have been passed on in pricing
Transaction Overview
 Due to financial pressures at home, both ITD and Loxley plan to divest their
combined 51% stake. The indicated asking price is US$30m.
 Asia Pacific Brewery (APB) has expressed interest in purchasing this stake for
US$25 million (prior to news of a recent increase in business tax).
 CDC Capital Partners is interested to form a consortium with SIFII to bid for the
stake.
 Preliminary valuations indicate a value of US$22-24m (based on either a dividend
discount model or on a listing).
36
Lao Brewery (cont.)
Transaction Overview (cont.)
 Specific issues relating to this investment include the country risk, foreign
exchange risk, a clear understanding of the concession terms, repatriation of
dividends and taxation.
 Proposed exit is through a combination of listing in Singapore/Thailand and/or sale
to a strategic investor. There is no listed brewery company in Thailand.
 Lao Brewery management (all local) sees value in a strategic partnership which
improves procurement, provides technical support and gives access to offshore
marketing. They would prefer a step by step approach (rather than giving a company
like APB control from the outset).
37
Bangkok Airways (BKKAIR)
Introduction
 Formed in 1986 by Dr. Prasert Prasarttong-Osoth as the first private airline carrier in
Thailand.
 BKKAIR has two specific business lines: a) Aviation transport service and b)
Airport operations.
 In aviation, BKKAIR currently operates 9 ATRs and 1 Boeing 717 on more than 10
regional and domestic routes, principally serving the tourist markets. Koh Samui is
by far the most important destination (c. 70% of aviation revenues), followed by
BKK-Siam Reap (c.10% of revenues). 90% of customers are foreign. Around 45%
of bookings derive from interline agreements with 42 international carriers.
 In airport services, BKKAIR owns and operates two international airport
a)Samui, in the South of Thailand
b)Sukhothai, in the North of Thailand
38
Bangkok Airways (cont.)
Introduction (cont.)
 The company has plans to build a third airport, in Trad, in the East of Thailand, to
carry tourists to Koh Chang (the second largest island of Thailand). The airport
application is currently awaiting approval from the Ministry of Transport and
Communications.
 BKKAIR has been managed by an independent management team of industry
professionals since 1995.
 Estimated 2000 revenues are Bt2.6bn/US$60m (Bt2.2bn/US$55m in 1999).
 The company is projecting sales growth of 10% p.a. for the next five years.
 BKKAIR is expected to list on the SET in the year 2002-2003
39
Bangkok Airways (cont.)
Transaction Overview
 BKKAIR is seeking to raise a total of Bt1.3bn (Bt1bn in debt and Bt300n in equity)
to fund several projects to support continued growth of the company and improve
efficiencies in its existing operations.
 The capital expenditure includes the following items:
 Samui airport expansion
 Deposits on 2 Boeing 717 and 6 ATRs (to replace the existing ones)
 Acquisition of Boeing 717 spare parts
 BKKAIR is in the process of finalizing the term sheet with the syndicated banks
and financial institutions. After the debt has been finalized, BKKAIR will start the
equity process.
40
Deal sheet : Others
Company
Proposal
Phoenix Pulp
(added 4/12)
* Thapar Industries (a Delhi based group) is
looking to sell a 25% stake
* Thapar has indicated that they have reached
agreement to sell the stake to an investor group
in Thailand aligned with the Thai shareholders.
This group may need outside support.
Amari Hotels
* Karnasuta family (ITD) looking at leverage buy
(added 22/11)
out
Blue Canyon C.C. * Debt Restructuring
(added 22/11)
* Looking to raise US$20m to reduce debt
United Palm Oil
(Revived
- 22/1/01)
* CDC selling c.42% stake
Food & Drink
(Added 11/10)
* 20-30% stake (appears to be) available
Introduction
Status
* 2nd largest pulp producer in Thailand
* Listed company. Mcap : US$105m.
* Low valuations in terms of PE and
EV/Tonne
* Siam Cement is reconsidering bidding for the stake.
In an earlier approach, they said they needed control
(and offered below market)
* Thapar is consulting the Thai group and will inform us
of any potential opportunity.
* A Thai 3 star hotel chain
* Awaiting documenation
* Phuket based golf course development.
* 1800 rai with housing.
* Top 5 course in Thailand.
* Close to airport.
* Listed company
* UPOIC has a market cap of c. US$43m
* CDC changing direction (towards tech.)
* UPOIC is Thailand's largest palm oil prod.
* Strong cash flow but limited growth.
* Manuf. frozen fruit and veg. 90% export
* Incurred significant currency losses
in 1997/98
* Listed company. M.Cap < US$4m.
* PE 1999 < 2
* Sales of c.Bt600m (US$15m) in 2000
* Bt4bn owed to SCIB. Looking to negotiate 40% hair
cut. Settling debt will allow transfer of properties.
* SCIB is sole creditor
* Arranged meeting with SCIB in February
* Possible delisting/relisting
* Requires tender offer
* CDC unable to find a buyer
* Cutting asking price
* Reviewing valuation
* Manuf. frozen fruit and veg. 90% export
* Incurred significant currency losses in 1997/98
* Management tied up in restructuring (till January)
41
Priority Deal list
PRIORITY DEAL LIST
Company
PRANDA
Expected
Investment
US$3-5m
Timeframe
(Tentation)
2 months
SIAM CONT'L CABLE
US$7-8m
2-3 months
LAO BREWERY
2-3 months
TALAD THAI
US$7-10m
(out of US$30m)
US$3-5m
LOXBIT
US$10m
1-2 months
2-4 months
Considerations
* Awaiting finalisation of debt buyback plan
* SIFII is front runner as equity investor given
established relations with management
* Valuation will be the critical issue
* Company has urgent need of funds
* SFII will need to negotiate debt restructuring
* SIF II is frontrunner to provide equity
* APB may match/exceed SIF II valuation
* Issues of share availability/valuation still
to be addressed
* No urgent need of capital
* Seeking partner that it will "add value"
42