Thailand: Opportunity knocks

• Sep 28, 2020

Although sentiment among consumers and investors has not recovered from bruises of the Covid-19 pandemic, the business world is seeing more mergers and acquisitions (M&A) as conglomerates are taking advantage of the economic slowdown to restructure their businesses or capture prime assets at a discounted rate.

Funding for the deals depends on a company’s financial status, and includes using operating cash flow, bond issuance, bank loans and capital increases.

Recently three large SET-listed companies in Thailand announced major upcoming deals: Central Retail Corporation Plc, Charoen Pokphand Foods Plc and Thai Union Group Plc.

“All businesses have been impacted by the economic slowdown and Covid-19 outbreak, but this is a good time for M&As and business restructuring, as companies can reduce expenditure and cut unprofitable units,” said Suttatip Peerasub, an analyst at Maybank Kim Eng Securities Thailand.

In the bigger picture, there has been a global trend of declining M&A activity due to uncertainties caused by the Covid-19 pandemic, and Thailand’s deal landscape in the second quarter naturally followed suit, according to KPMG Thailand.

There were 31 M&A deals valued at US$205.4 million in the second quarter, down from a combined acquisition value of $1.4 billion for 29 deals in the first quarter.

“With interest rates at historic lows, companies with solid balance sheets may look to explore distressed opportunities in the next few quarters as more opportunities present themselves,” said KPMG Thailand. “Given that declining valuations are creating opportunities to pursue deals that create long-term value, we expect M&A activities to cautiously move forward.”

AGGRESSIVE ACQUISITIONS

Many energy firms have adopted more mergers and acquisitions as part of their new investment in renewable energy.

They have bought new assets, including taking over power plants, for a range of reasons from inexpensive prices and revenue boosting to a move to steer away from non-oil business.

The companies want to avoid risk from oil price fluctuations this year, following the impact of the oil price war and Covid-19 pandemic that has led to worldwide travel restrictions.

Among the companies is Gulf Energy Development Plc, Thailand’s top power generation firm by capacity. It surprised peers in the energy sector with frequent announcements of new deals during the first half of the year.

The firm allotted 45 billion baht for more asset acquisitions later this year, including Borkum Riffgrund 2, a 464-megawatt offshore wind farm in Germany. This acquisition is estimated at $550 million.

“We will not miss an opportunity if we see potential in the acquisitions,” said Gulf chief financial officer Yupapin Wangviwat.

She said her company will allocate another 55 billion baht for similar business direction between 2021 and 2025.

With its current financial status, Gulf can raise funds of up to 80 billion baht if it sees new business potential in renewable energy, Ms Yupapin said. It particularly targets wind and solar farms in northern Europe and the US.

Ms Yupapin said earlier that Gulf would make new asset purchases as prices look set to drop after energy firms cut financial costs because of lower interest rates since early this year.

SET-listed BCPG Plc, the renewable energy arm of Bangchak Corporation Plc, is also eager to acquire renewable energy assets in Thailand and neigbouring countries as a “quick win” to generate immediate cash flow.

Early this year, BCPG allocated 40 billion baht as capital expenditure for 2020-24, with most of the money spent for new asset acquisitions in Laos, including a hydropower plant and a wind farm with combined capacity of over 700MW. The electricity is sold to the state grid in Vietnam.

BCPG president Bundit Sapianchai said his company decided to expand investment in Laos in order to avoid relatively high competition in the energy sector in Vietnam, which has drawn many Thai firms.

BCPG earlier took over 114MW hydropower plants Nam San 3A and 3B from a firm in Laos to sell electricity to Vietnam’s state-run Electricity Vietnam.

Its asset acquisitions are also aimed at offsetting a decline in revenue because adder tariffs for its solar farms in Thailand, which allow it to sell electricity to the state grid at high prices, are scheduled to expire during 2023 and 2024, said BCPG executive vice-president Charnvit Trangadisaikul.

M&A ACCELERATOR

Visit Limlurcha, vice-president of the Thai National Shippers’ Council, said the Covid-19 outbreak has ignited active mergers and acquisitions in the food industry, now that the industry is trying hard to brave shrinking market demand and weak consumer purchasing power.

“In fact, the overall food industry has been suffering from weak global demand and a strong baht over the last few years, as indicated by M&As in restaurant, catering and hotel business, particularly for chains which operate many branches,” Mr Visit said. “The virus outbreak is just the accelerator for M&A.”

According to Mr Visit, the virus crisis has offered a good opportunity for capital-rich business owners with an established and long financial lifeline to acquire liquidity-plagued and weak enterprises in order to strengthen and reinforce their existing businesses and expand their markets.

“A group that acquires other businesses may see a good time to expand their markets, particularly where they are not yet established or strong enough,” he said. “The M&A trend is anticipated until the end of this year.”

Isara Vongkusolkit, chairman of Mitr Phol Sugar Corp, Asia’s largest sugar producer, said the current active M&As possibly stem from the foresight by buyers to expand their opportunities to do new business or create more business synergy.

However, he suggests that the buyers have to optimise different expertise and experience of the ventures they acquire.

“M&A will offer a good opportunity if we are strong enough and help expand distribution channels for our products in the market or enable us to grow in markets where we do not yet operate,” Mr Isara said.

THE SAME REIGN

Last month, the property sector saw similar movement when SET-listed developer Frasers Property Thailand (FPT) completed a de-listing of Golden Land Property Development, a process that came a year after it completed the acquisition of 94.5% of shares in Golden Land through a voluntary tender offer in August 2019.

The two companies had combined assets worth over 90 billion baht, according to FPT.

After that development in the past month, FPT moved at a faster pace with a plan to rebrand future projects of the Golden Land brand with Frasers.

Frasers is under the control of Panote Sirivadhanabhakdi, second son of tycoon Charoen Sirivadhanabhakdi.

Mr Panote, group chief executive of Singapore-listed Frasers Property, announced that FPT aims to be a fully integrated real estate platform.

The Golden Land acquisition has helped complete the portfolio of FPT, as its former strength was industrial estates, while Golden Land has a variety of residential and commercial properties.

FPT, formerly Ticon Industrial Connection, is one of Thailand’s largest industrial and logistics property companies, owned by the Sirivadhanabhakdi family, which acquired Ticon three years ago.

As of June 30, FPT had total assets of 96.8 billion baht. Residential projects, hotels, offices and retail spaces were formerly under Golden Land.

Source: https://www.bangkokpost.com/business/1992643/opportunity-knocks