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Will Larger Listings Bring Excitement Back to Thai Stock Market?

by Jonathan Hopfner


BANGKOK (KWR) Thai Prime Minister Thaksin Shinawatra’s trademark optimism was on full display on the first day of the Focus Thailand 2004 investment conference Sept. 20, with the leader telling an audience of local and foreign fund managers and executives that the country remained firmly on the growth track.

Despite internal difficulties such as and avian influenza, the persistent violence in Thailand’s south, and global uncertainty over oil prices, Shinawatra said, “'macro-figures for last year and this year have continued to be highly positive” for Thailand.

The prime minister predicted growth of up to 7 percent this year, noting that exports were rising and the nation’s foreign exchange reserves swelling, prompting Standard & Poors to recently reward Thailand with a long-term sovereign credit rating upgrade.

But Shinawatra was less sanguine about the fate of the Stock Exchange of Thailand (SET), which despite the country’s impressive economic performance has disappointed investors this year after emerging as Asia’s best-performing market in 2003.

The market shed some 16 percent of its value in the first quarter of 2004 after registering growth of 116 percent last year, hovering recently at around 650 points since breaking the 800-point level in January.

Shinawatra’s most recent reference to the decidedly lackluster market was a pledge in his weekly address Sept. 18 to launch an investigation into trading practices on the SET, soon after Ekkayuth Anchanabutr, a wealthy businessman and one-time fugitive prone to launching impromptu attacks on the current government, accused senior officials from the prime minister’s Thai Rak Thai party of manipulating securities prices.

Unfortunately, transparency and credibility – or the perceived lack thereof -- may not be the only factor causing some investors to overlook the SET. After years of delays, the government has still failed to bring some of the country’s most appealing corporations to market.

While there are ample protestations to the contrary – Shinawatra told a Sept. 9 luncheon staged by the Thai-Japanese chamber of commerce that he was “determined” to press ahead with the much-discussed privatization of several state-owned enterprises in the “near future” – the government’s privatization drive has stalled and further progress seems a distant, and politically tricky, possibility.

Since the Airports Authority of Thailand made its debut on the SET in March in a $439 million IPO that was 20 times oversubscribed, many local and foreign investors have eagerly awaited the listing of other government monopolies, such as the Electricity Generating Authority of Thailand (EGAT).

More than a few observers see state-owned firms as questionable buys. Many are inefficient and chronically overstaffed, and it is difficult to predict how they would fare in a more competitive market. But not even the most jaded commentators question the fact that with their varied sources of revenue, official connections, and commanding grip on much of the country’s infrastructure and resources, such enterprises present a tempting investment opportunity.

And it is opportunities like this that the SET sorely needs. With the vast majority of recent listings dominated by undersized manufacturers and producers, industry players such as Marc Fuchs, country manager for Credit Suisse First Boston Securities, have noted that many long-term investors still see the Thai market as “quite small.”

Even the government seems to be admitting that in terms of generating interest in the SET, bigger is better, with Minister of Finance Somkid Jatusripitak telling the Focus Thailand 2004 conference Sept. 22 that many foreign investors felt the relatively tiny size of most listed local companies limited investment opportunities in the country.

Jatusripitak said the planned debut of sizeable holding company Thai Beverage would mark a turning point for the SET, but the shortage of large corporations coming to the market means the pressure to sell off chunks of state-owned firms is mounting, and key not only to the SET’s future, but the government’s credibility.

Since plans to partially privatize EGAT in May in what would have been the largest initial public offering in Thailand’s history were scuttled by widespread labor resistance, the government’s privatization drive has produced little but promises. Provincial electricity and water monopolies are slated for listing next year while 2006 will apparently see the market debuts of the port and transport authorities.

And though regulators are unlikely to complete a legal framework for a newly liberalized telecom market for months or even years – making it nearly impossible to apply a market value to the state telecom providers – Minister of Information and Communications Surapong Suebwonglee has insisted the TOT and the Communications Authority of Thailand (CAT) will both be listed no later than the second half 2005.

But the deadlines for share sales in many state-owned firms have been broken many times in the past, and some analysts see the government’s position now as weaker than it was when the privatization balloon was initially floated. Mass protests by employees against the planned listing of EGAT have inspired similar sentiments in their counterparts at other state-owned firms, who after watching the government back away from the EGAT IPO are unlikely to allow even minute portions of their companies to be sold off without a fight.

In addition, the recent victory of an opposition party candidate in the election for Bangkok governor was a very visible indication that Shinawatra’s Thai Rak Thai party may not enjoy the virtual monopoly on power it thought it did. The party’s earlier predictions that it would take 400 out of 500 parliamentary seats in next January’s election have been quietly dropped, though its rural support base remains strong.

A weak showing in the elections could stifle any efforts by the prime minister and his team to forge ahead with the politically sensitive privatization initiative. While Shinawatra’s critics are no doubt viewing the apparent rejection of Thai Rak Thai in Bangkok as an indication that the upcoming polls will see the ruling party become a shadow of its formal self, potential and current investors in the SET will be hoping for a very different outcome.


Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Associate Editor: Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Darrel Whitten, Sergei Blagov, Kumar Amitav Chaliha, Jonathan Hopfner, Jim Letourneau and Finn Drouet Majlergaard



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