Court short-circuits giant Thai energy IPO
Court short-circuits giant Thai energy IPOBy Kenneth Crawford
BANGKOK - Ending weeks of speculation, the Supreme Administrative Court on Tuesday delayed plans for the state-owned Electricity Generating Authority of Thailand (EGAT) to privatize, putting on hold a 31 billion baht (US$753 million) initial public offering (IPO). It would have been the largest share issuance of a state enterprise to date in Thailand.
Despite objections from Energy Minister Viset Choopiban, who tried to convince the court that EGAT's IPO was in the public's best interest, Judge Charan Hathagan delayed the plan to sell a 25% stake in the company and said the decision would not affect investor sentiment. The court's decision will not stand as the last word on the case. The ruling, however, orders the company to stall - for an undetermined length of time - its listing on the Stock Exchange of Thailand (SET).
In documents released by the Supreme Administrative Court, officials said that there was nothing unlawful about two royal decrees related to EGAT's privatization. One outlines the authoritative rights and privileges of EGAT; the other sets the privatization time frame.
The court, however, found that the decrees were drafted without public approval or support, a point civic groups have emphasized during protests over the past two weeks.
The lawsuit was filed by 11 members of the Confederation of Consumer Organizations, Thailand (CCOT). The group claims the privatization of a state enterprise that supplies more than 60% of the country's energy needs is not in the public's best interest.
Prior to the judgement, CCOT submitted letters to embassies across Bangkok asking diplomats to warn potential investors of the risks involved with EGAT's IPO.
The decision came as a surprise as many observers had predicted it would allow the state utility to issue shares.
Prospective investors queued at banks early on Tuesday to submit the necessary documents for subscribing to EGAT shares. The electricity utility was scheduled to begin its subscription period later in the day.
Other speculative activity by investors included heavy buying in Phatra Securities' stock. The company is EGAT's lead underwriter for the IPO. Phatra shares increased 2.18% to 46.75 baht shortly after trading began. When the court announced its decision, the stock price nosedived, and finished the day at 41.25 baht, down 8.84%.
"Clearly, there was some initial disappointment to the delayed ruling news," said Alastair Macdonald, head of research at Finansa Securities. "From a larger perspective though, the market has fallen back for weeks. I am not sure the SET will push down much further."
Thailand's SET lost 0.8% on Wednesday, the biggest slide in the region, to close at 675.31.
There are fears the bourse will see aggressive capital flight from foreign investors who have sidelined trading activity and capital in preparation for EGAT's listing. Local analysts interviewed said they would be watching the trading activity of foreign investors closely over the next few days to help determine where the market is likely to be at the end of the year.
Optimistic analysts are predicting that only a small amount of capital flight will occur. There are other highly capitalized stocks on the SET worth investing in, and the market is still relatively cheap compared to regional bourses.
EGAT is attempting to sell 1.245 billion shares on the open market, a transaction valued at more than 31 billion baht. The issuance is part of the government's long-term policy of liberalizing sectors dominated by state enterprises.
"This is the first case in which a state enterprise has failed to privatize, and will serve as a lesson for others," said Kongkiat Opaswongkarn, chief executive officer of Asia Plus Securities. "Clearly, proper restructuring of state enterprises is necessary before privatization."
Setback for privatization program
Thai economists critical of the deal have reminded the government of the fact that EGAT has enjoyed a good record of efficiency and is one of the more profitable state-run public utilities, wrote Marwaan Macan-Markar of Inter Press Service (IPS).
"The government wants to privatize EGAT because it would easily pave the way for other state enterprises to be privatized," Sirichai Mai-ngam, head of the State Enterprises Workers Relations Confederation, a leading national labor union, told IPS. "The prime minister knows how significant this deal is.''
In February 2004, the Thaksin administration was buffeted by an outpouring of public protests, led by EGAT's trade union and the labor activists from Thailand's other state enterprises. These protests, which continued for weeks, compelled the government to go slow on its privatization drive.
The plans to privatize EGAT are part of Prime Minister Thaksin Shinawatra's vision to hand over nine leading state enterprises to the private sector. Among the public utilities destined for such change are the Metropolitan Electricity Authority, the Metropolitan Waterworks Authority and the Government Pharmaceutical Organization.
The pressure on the Thai government to sell its state enterprises comes from the conditions imposed on Bangkok by the International Monetary Fund as part of a bailout package in the wake of the 1997 financial crisis.
The concern that the public stands to lose when the state-run power monopoly is transformed into a private-sector monopoly is compounded by the government's reluctance to establish an independent regulatory body to monitor the deal and prevent abuse by the new company.
"Right now there is no mechanism to prevent excessive profit making or manipulation of share prices in this planned privatized power monopoly," Chuenchom Sangarasri Greacen, an energy researcher, said during an IPS interview. "This is very scary and is a license for abuse."
By contrast, in other Asian nations such as the Philippines and South Korea, where state-run public utilities have been transformed into private companies, regulatory bodies have been part of the equation. "This is normally the case and you find it in Europe, in the United States and in South America," added Chuenchom.
Such worries are with reason, given the questionable ways in which shares were sold when the country's lucrative petroleum authority was privatized. A privileged few bought all the shares in some 70 seconds in October 2001, the first year of the Thaksin administration.
In the past three years, according to researchers, the privatized petroleum authority has seen profits increase by 500%. Yet, consumers have had to shoulder mounting bills due to rising oil prices and the Thai taxpayer has had to bear the burden of the government's oil subsidies.
"We made a big mistake with the privatization of the petroleum authority. The government has still to appoint an independent regulator," Chuenchom said.