ptt: after the tom-yum-kung disease february 24, 2003 piyaworn chankanit sunny lo jennifer pawlowski...
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PTT: After the Tom-Yum-Kung Disease
February 24, 2003
Piyaworn Chankanit
Sunny Lo
Jennifer Pawlowski
Sam Shin
Agenda
PTT and the Industry
PTTEP
EGAT
Country Background
Privatization Process
Risk Assessment
Valuation
Recommendations
IPO Update
Case Summary
In November 2001, the Petroleum Authority of Thailand (PTT), privatized through the largest IPO in Thai history.
The Industry
Oil ReservesThailand has 300 mn barrels of proven oil reservesIn 1997 107,000 barrels/day produced
Natural Gas ReservesProven in 2000: 12,705 BcfProbable/possible reserves: 21,000 Bcf
PTTOperations began in 1978, state-owned enterpriseMerger between Oil & Fuel Organization and Natural Gas OrganizationThailand’s only fully integrated gas and oil companyIndustry leader in marketing and distribution of gas and oil products
PTTOil
Purchased in/outside ThailandCustomer distribution – 1519 nationwide service stations
GasPrincipal processor and distributorPurchases from PTTEP and other producers in Thailand & MyanmarCustomer distribution – large volume (power plants) and small volume (local vendors)
PTT Revenues
(in millions) 1999 2000 2000 2000 2001 2001Bt Bt $ Bt Bt $
Combined Sales Revenue 228,617 365,106 8,067 157,140 187,829 4,150
Year Ended December 31, Six Months Ended June 30,
PTTEP
Subsidiary of PTT, which has 61% equity interest
Exploration and production of natural gas
Owns 22% natural gas reserves
In 2000, involved in 13 projects9 with proven reserves, 5 exploratory
3 on shore, 10 offshore
EGAT
Thailand’s principal state-owned power producer
PTT’s largest customer
Approximately 13% of PTT’s total 2000 revenue
PTT highly dependent on EGAT sales to generate sufficient cash flows
Reductions in EGAT demand highly affect PTT
PTT Value Chain
Pipeline Network
PTT Natural Gas Supply
Country Background
Strong decade of economic growth pre-Asian financial crisis
July 1997 Thai government floats currency (baht) resulting in immediate decline in value
Spread of financial crisis to Asia and then global markets
IMF Involvement
Post-Asian Crisis IMF granted $17.2 bn package to help institute economic reform
Restructure financial sector, increase competitiveness, improve legal environment for business sector
Thai government ordered to privatize many public industries
PTT set for IPO in November 2001
PTT Privatization
Original date in Q4 1998, but ultimately set for November 2001
ExpectationsPTT established as holding company and listed on Thai Stock Exchange
PTT would gradually sell off subsidiary holdings
Raise $14 bn in first 3 years of privatization
PTT Strengths
Dominant position in industry
Integrated natural gas operations
Gas earnings reduce exposure to oil price volatility
Low cost and growing upstream operations
Experienced management team
Risk Assessment
Operational Heavy dependence on EGAT for
sales
Take-or-pay purchase agreements
Financial Highly leveraged
(approx 80% D/V)
Sovereign High currency risk
Government has historically affected gas/oil prices
Discussion Points
Cost of Capital CalculationFrom ICCRC, the country rating of Thailand as of September, 2001 was 50.0
Cost of Equity: 21.00%
Risk Adjusted rE: 17.00%
Cost of Debt: 10.20%
Cost of Capital: 12.23% (in 2002)
Valuation
AE 31.64 Bt
FCFU 24.06 Bt
Multiple (EV/EBITDA) 49.62 Bt
Multiple (P/E) 39.99 Bt
Recommendation
Macroeconomic conditions in 2001 much worse than today. Expected IPO price of Bt 37.5 – 65 overestimated PTT’s value.
Our valuation indicates a proper value between Bt 24.06 (FCFU) – 31.64 (AE).
IPO Update
November 22, 2001 Thailand secured largest privatization and fourth largest equity offering to dateIPO raised proceeds of $726 mnMarket capitalization of $2,741 mnFinal pricing at the Bt 31 and Bt 35 rangeCurrently trading at Bt 42 per share (02/0703)
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