Singapore Thai Beverage IPO lukewarm
See "ThaiBev IPO hits by poor sentiment" (business, front page)By Jon Fernquest
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The lukewarm response to the share offering of ThaiBev comes amid the most volatile equity markets in more than a year, as fears of rising interest rates, coupled with inflation, have deflated global equity markets.
This is a good opportunity to recap the events leading up to the Singapore IPO and also learn a little about the detailed steps in an IPO discussed in the article. Here are some questions to guide your reading (See anwer key at end for answers):
1. Was the final price for the shares lower, equal to, or higher than a market price determined by supply and demand would have been?
2. Were all the parties involved in the IPO satisfied with the final pricing? Why or why not?
3. Will a greenshoe option be used to reduce excess demand and stabilize the share price?
4. Have any shares been set aside for a greenshoe option?
5. Was there any mention of a possible SET (Stock Exchange of Thailand) IPO in the future?
6. Was this a large IPO? How does it compare to other IPOs on the Singapore Stock Exchange?
7. How did other IPOs in Asia affect this IPO?
8. What does Thai Beverage plan to do with the money it raised with the IPO?
9. Why did Thai Beverage choose to list on the Singapore Stock Exchange instead of SET (The Stock Exchange of Thailand) ?
10. Does the resignation of SET's president seem to be connected to the IPO (See front page business)?
11. Has SET ever had a female president before?
12. Was the new president selected from outside SET or promoted from within SET? Why?
13. What well-known products does Thai Beverage produce?
Vocabulary (in discussion above)
drew to a close - finishing, almost finished but not finished yetrecap - summarise, repeat the main points
Vocabulary (in article)
lukewarm – without enthusiasmpoor sentiment – no enthusiasm
volatile – changing suddenly and unexpectedly
initial public offering (IPO) – a company's first sale of stock to the public (See Wikipedia and www.iporesources.com)
the indicative price range – the price range for bids in book building (See below)
book-building – a process of price discovery with Dutch auctions (to encourage aggressive bidding) used in IPOs. (See All you wanted to know about book building)
corporate communications – the department in a corporation responsible for distributing information about the company both inside and outside of the corporation, outside of the company this includes public relations and managing corporate identity (See Wikipedia:Corporate_identity and Corporate Identity Portal
the retail and institutional portions – the buyers of IPO stock are split between large institutions such as insurance funds, banks, retirement funds, and mutual funds that invest as part of their business and smaller retail investors who purchase shares through their brokers
subscribe to the shares – apply to buy shares in the company
oversubscribed – more people applied to buy shares than there were shares
anticipated – waiting for eagerly
to tap into – use to get what you want, exploit a resource
robust – strong
spirit market – market for hard liquor with a high percentage of alcohol including alcoholic beverages such as whiskey, gin, vodka, tequila, and rice whisky
a good play on Thailand’s consumer market – if you want to make an investment based on the performance of Thailand's consumer markets
equity markets – stock markets
coupled with – combined with
deflated equity markets – stock prices fell
make its debut – enter for the first time
the city state – Singapore is a country and also only one city, a whole state in a city
a slump – prices or economic activity falls and then remains low for a period of time
dampened – reduced
keen on – like very much
has good fundamentals –“ the company's sales, earnings, debt and dividend prospects are fundamentals that would affect share price” (Source)
gloomy – unhappy and without hope
a greenshoe option – an additional issue of shares used when an issue is oversubscribed to stabilize the post-listing price, the shares come from the pre-issue shareholders or the investment bank (Source: All you wanted to know about book building)
y is conducive to x – y makes x likely to happen
pay down debts – reduce debts
leverage – “Using given resources in such a way that the potential positive or negative outcome is magnified. In finance, this generally refers to borrowing.” If a company borrows and there is a sudden business downturn then the risk of a loan default, insolvency, and the bankruptcy is greater (See Wikipedia on Leverage, the Capital Asset Pricing Model (CAPM) can be used to show this effect)
debt-equity ratio – indicates the relative amount of debt versus stock used to finance a company’s assets, measures how leveraged a company is (See Wikipedia:Debt_equity_ratio)
Answer Key:
1. Was the final price for the shares lower, equal to, or higher than a market price determined by supply and demand would have been?
Lower, “the offer was three to four times oversubscribed,” which means there was excess demand, so the price was not a “market clearing price” in which supply equalled demand.
2. Were all the parties involved in the IPO satisfied with the final pricing? Why or why not?
Everyone seems satisfied: "Most analysts and fund managers said that the pricing was good as it offered the shareholders some upside potential."
3. Will a greenshoe option be used to reduce excess demand and stabilize the share price?
Probably not: “There was not talk about exercising the greenshoe option during our meeting today,” according to the vice-president for corporate communications at Thai Beverage.
4. Have any shares been set aside for a greenshoe option?
Yes, 733 million shares.
5. Was there any mention of a possible SET (Stock Exchange of Thailand) IPO in the future?
Yes: "The company still has more than 2.4 billion shares that have been registered but not paid up, and has said that it could use these shares in the future if and when the listing on the SET was conducive.”
6. Was this a large IPO? How does it compare to other IPOs on the Singapore Stock Exchange?
Very large. It was the second largest at the Singapore Stock Exchange. Only the IPO of state-owned Singapore Telecommunication in 1993 was greater.
7. How did other IPOs in Asia affect this IPO?
The Bank of China IPO at $11.1 billion is so large that money from large institutional investors was probably drawn away from the Thai Beverage IPO.
8. What does Thai Beverage plan to do with the money it raised with the IPO?
Substantially reduce its level of debt. Reduce its debt-equity ratio from 1.4 to less than 1.
9. Why did Thai Beverage choose to list on the Singapore Stock Exchange instead of SET (The Stock Exchange of Thailand) ?
“Thai Beverage chose to list in Singapore after encountering strong opposition from anti-alcohol activists in its listing plans for the SET.”
10. Does the resignation of SET's president seem to be connected to the IPO (See front page business)?
Yes, the president “tendered his resignation to the SET board earlier this week following an unsuccessful effort to have Thai Beverage Plc., the country’s largest alcoholic beverages producer, list on the market.”
A securities industry executive commented, “I understand Khun Kittiratt’s actions. The Thai market failed to attract a strong listing candidate, while Singapore gained. This is the price of political intervention in the market.”
11. Has SET ever had a female president before?
No, this is the first time.
12. Was the new president selected from outside SET or promoted from within SET? Why?
She was promoted from within SET. No outside search for a successor was launched, “due to the bearish state of the markets.”
13. What well-known products does Thai Beverage produce?
Chang Beer and Mekhong Rum.
Further Reading
For further interesting reading look at "Leverage" in this webpage on Financial Ratios. Read this article on Corporate Debt in the online Concise Encyclopedia of Economics. Although it's probably only of historical now, it's worth looking back at online papers that were written after the Asian Economic Crisis of 1997 and how they discuss high debt-equity ratios with short-term foreign debt as being a precipitating cause [paper1, paper2, presentation1, presentation2]. Find more with Google searches like: "thailand debt equity ratio".
If corporate finance is your specialty, check out the wonderful but difficult powerpoint lectures 15 and 16 from this Rice University course on corporate finance which feature spreadsheet simulations of the effect of different capital structures (debt vs. equity) on a company's value. They're a good example of the kind of high quality material you can find on the internet through Google searches.
If you're just looking for books on economics to read check out the summer reading list on the weblog of Harvard economics professor Mankiw.
