Thaivisa.com - On Thai IPO's

On Thai IPO's

Saturday, 23 December 2006

On Thai IPO's

I like Thai IPO's, but can you get any? Here I share some thoughts and nuances on Thai IPO's.

Thai IPOï¿½s

An Initial Public Offering (IPO) is the listing of a company on a stock exchange for the first time. Thai IPOs are currently in high demand, but individual investors are mostly missing out on this hot segment of the market. Ask your broker to be on any and every list of new IPO's, as they are likely to trade higher than their original IPO price. Just today TK (Thitikorn) started trading. It was priced to investors at 11 Baht per share and opened for trading at 20. It closed its first trading day on October 2, at 18.5. Or just about 70% above its initial offering price.

The lucky few of you who will get any IPO's now or in the future, will come to look at this as a gift from your broker, which is what brokers want it to look like.

During a bull market IPO's historically do very well. So where are all these millions of shares going? Probably to the large and dominant fund companies which have mostly missed out on the massive small cap re-valuation in Thailand. Many members of Thaistocks.com have hugely benefited from these distortions over the past years.

In time of course, the Thai IPO market will no doubt overheat and the quality of newly listed firms will sink. Then individual investors will get more allocation and the new parloir will be "you take the good with the bad". Meaning some newly issued IPO's will not automatically increase in price when listed. In time, you will feel you are getting the bad with the good. By then you will have been burned a few rounds and understand the IPO cycle. Anyway, that is another story some time off; one I hope to warn you about when we get there.

IPO's usually have good due diligence, meaning they get checked thoroughly and meet fairly rigorous criteria for a SET listing. There is lots of data available and a full prospectus. But here is where the classic and habitual conflict of interest arises: the broker/investment bankers derive huge fees from a newly listed company on the exchange. Especially if thereafter the price rises on the SET, as like now.

In the past times when all IPO's were successful, there were often abuses. This is usually done by some brokers throwing "a few dogs" into the pack of usual winners. I say brokers because investment banking units, who take private firms public, belong to registered brokerage firms. A bullish environment in IPO's can last a long time and is not derailed by short corrections or minor set backs. There is much to catch-up and I predict the Thai bull on IPO's is far from over.

Pricing and Prospectus

You should be told the price and amount of new shares of an IPO offered you, before you are asked to pay for it. The prospectus is in practice difficult to obtain and would probably be in Thai language, unless it is a large, internationally offered Thai IPO.

The shares first trade on the SET or MAI, usually within a few weeks from when the IPO is fully subscribed. On the trading day the stock is likely to be very active and volatile. There can be a good buying opportunity if for example when the day the stock is "born", the market in general is price correcting. Or not even in correct mode, as in the case of AIT, now at a price of 35.25. AIT came public around 20 in early August and then just sat around 23-24 for many weeks until it rapidly shot up to current levels.

In the next few months a number of IPO's are ready to be listed. Among the bigger ones are Thai Olefins (raising 4.5 bill Baht) and the 400 million share offering by Thai Airways. Kim Eng is also expected to go public this November with some 92 million shares. This broker reportedly opens 800 new accounts a week and has some 30,000 individual investment accounts. Kim Eng does close to 11 -12%% of the volume on the SET.

Smaller IPOs include Tor Tor Bor 5 (44 million shares), CP 7-Eleven (40 mill shares) and SC Assets (64.5 mill shares). Also next month, Thai Mizuwa, a plastics company, will list on the MAI board with 7.9 million shares. MAI stands for Market for Alternative Investments, where smaller companies can list. I think these IPOs as a group will perform better the SET benchmark. Of course many more IPOs will be announced before year end.

If there is no major negative event, I predict there will be over 50 IPO's for all of next year and that the SET index will reach 800, probably before June 2004.

Paul Renaud.

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On Thai IPO's

I like Thai IPO's, but can you get any? Here I share some thoughts and nuances on Thai IPO's.

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