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WorldNovember 2 2015

Relaxed listing rules help Thailand's corporates defy economic malaise

Despite a drop in exports, Thailand's private sector has been bolstered by a relaxation in market regulations regarding the listing of overseas operations, which has helped the country's corporations to thrive in a low-growth environment.
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Thailand’s economic growth has been slowing for the past two-and-a-half years, but Thailand's businesses, especially the bigger listed companies, have been showing steady growth in revenues despite flagging domestic sales. One of the main reasons is that they have been on an overseas investment spree, especially in south-east Asia, and specifically the high-growth emerging economies of the Greater Mekong sub-region. The Thai financial sector, both banks and the capital markets, are in a race to keep up with the corporate migration abroad.

While Thai banks have been steadily expanding their branch networks, especially into so-called CLMV countries (Cambodia, Laos, Myanmar and Vietnam), to follow their client base, the Stock Exchange of Thailand (SET) has entered the fray by relaxing its regulations to encourage Thai firms to list their overseas operations on the Bangkok bourse. New regulations promulgated in June allow Thai firms to list foreign subsidies as holding companies or as secondary, infrastructure and real estate on the SET.

“If the government did not relax the regulations it would be tough for us to bring companies to be listed here or to raise funds for them,” says Pakorn Peetathawatchai, the SET's head of corporate strategy and finance. “And the group of companies that will benefit the most is Thai companies who have been active in the region.” 

Outward facing

Thai companies have been very active during the past five years in diversifying their investments abroad. Thailand’s outbound foreign investment peaked in 2012 when it reached $13bn, slightly more than inbound foreign direct investment (FDI) inflows of $12.8bn the same year, according to Bank of Thailand (BOT) data. FDI outflows amounted to $11.6bn in 2013 and $7.6bn in 2014. This trend is understandable. Thailand’s economic growth is slowing and many economists warn that the trend is structural, not cyclical. The BOT has forecast growth of less than 3% for 2015. The country's gross domestic product grew by 0.9% in 2014, 2.8% in 2013 and 7.3% in 2012 in the aftermath of the devastating floods of 2011 that resulted in 0.8% growth that year.

All of which shows that Thailand’s once-resilient export-led economy is spluttering, but not its private sector champions. While total exports declined 4.4% in the first quarter of 2015, they were up 10.4% to the CLMV region. “Roughly 80% of the listed firms invest and export to the Association of South-east Asian Nations [Asean] region and roughly 50% to 60% are actually investing and exporting to the CLMV countries,” says Mr Peetathawatchai. “Thai companies are not just Thai companies anymore, so how can we facilitate them?”

This year, the Thailand Securities Exchange Commission (SEC) and the SET have helped domestic energy company CK Power list a Laos-based power plant, and PM Thoresen Asia Holdings list its Vietnam-based fertiliser plant on the Bangkok bourse. In June, the SEC approved the listing of Amata Vietnam Joint Stock Company, a subsidiary of the Amata Corp, one of Thailand’s leading industrial estate operators. Amata has been running an industrial estate in the Bien Hoa district of southern Vietnam for the past 20 years, and recently won permission to set up a second estate in the nearby Long Thanh district.

“We were thinking about whether to choose the Vietnam stock market or the Thai stock market,” says Steven Siew, senior vice-president and chief financial officer of Amata Corp. “In the end our shareholders decided that because of corporate governance, the Thai market would be better, and at the same time SET announced its new prototype, allowing Thai corporations with overseas operations to list in Thailand.”  

Market appeal

Thailand is also trying to offer its capital markets as a source of funding for CLMV countries and companies to issue bonds or list their stocks on the Bangkok bourse. In 2012, the government relaxed its requirement that foreign issuers of bonds must be investment-grade rated, paving the way for neighbouring Laos to issue its first batch of sovereign bonds (worth Bt1.5bn, or $45m) on the Thai capital market in May 2013.

Since then, Laos has issued three more tranches, with the latest in June worth Bt12bn. The Lao sovereign bonds were handled by the Thai private investment advisory company Twin Pine Consulting. Twin Pine also managed the listing of the first Lao corporate bonds on the Thai market in December, raising Bt6.5bn for the partly state-owned energy company EDL-Generation.

Bangkok-based Twin Pine has taken on the kind of fee-based advisory role in Laos that Thai banks are also striving for but may not have the time to pursue. “We are like a one-stop service,” says Adisorn Singhsacha, managing director of Twin Pine. “We are there to answer all the questions and handle everything from start to finish... The banks have a clear role to play but if they come here at an early stage they would have to invest a lot more time.” Mr Singhsacha adds that he did use Thai banks to arrange and underwrite the Lao bond issues.

Keeping it local

However, not all Thai corporations are interested in exploiting the new opportunities offered by the Thai capital market in their overseas expansions. Siam Cement is a good example. Between 2011 to mid-2015, Siam Cement spent Bt72bn on the acquisition of 61 companies abroad, most of them in the Asean region. But the acquisitions were almost entirely financed by Siam's parent company, which has, since 2000, issued about Bt160bn in debentures to the Thai public.

Siam Cement, which is partly owned by the Crown Property Bureau – the investment arm of the Thai monarchy, switched to raising money from their bonds in the wake of the 1997 Asian financial crisis, which left the corporation deep in debt to foreign banks. “For financing expansion we still use our money from Thailand,” says Siam Cement chief financial officer Chaovalit Ekabut. “We have no objective to raise money on the SET because we could always support our subsidiaries with the parent’s money.”

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