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PTT: After the Tom-Yum-Kung Disease

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.

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PTT: After the Tom-Yum-Kung Disease

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  1. PTT: After the Tom-Yum-Kung Disease February 24, 2003 Piyaworn Chankanit Sunny Lo Jennifer Pawlowski Sam Shin

  2. Agenda • PTT and the Industry • PTTEP • EGAT • Country Background • Privatization Process • Risk Assessment • Valuation • Recommendations • IPO Update

  3. Case Summary • In November 2001, the Petroleum Authority of Thailand (PTT), privatized through the largest IPO in Thai history.

  4. The Industry • Oil Reserves • Thailand has 300 mn barrels of proven oil reserves • In 1997 107,000 barrels/day produced • Natural Gas Reserves • Proven in 2000: 12,705 Bcf • Probable/possible reserves: 21,000 Bcf

  5. PTT • Operations began in 1978, state-owned enterprise • Merger between Oil & Fuel Organization and Natural Gas Organization • Thailand’s only fully integrated gas and oil company • Industry leader in marketing and distribution of gas and oil products

  6. PTT • Oil • Purchased in/outside Thailand • Customer distribution – 1519 nationwide service stations • Gas • Principal processor and distributor • Purchases from PTTEP and other producers in Thailand & Myanmar • Customer distribution – large volume (power plants) and small volume (local vendors)

  7. PTT Revenues

  8. 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 projects • 9 with proven reserves, 5 exploratory • 3 on shore, 10 offshore

  9. 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

  10. PTT Value Chain

  11. Pipeline Network

  12. PTT Natural Gas Supply

  13. 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

  14. 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

  15. PTT Privatization • Original date in Q4 1998, but ultimately set for November 2001 • Expectations • PTT 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

  16. 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

  17. Risk Assessment

  18. Discussion Points

  19. Cost of Capital Calculation • From 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)

  20. Valuation

  21. 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).

  22. IPO Update • November 22, 2001 Thailand secured largest privatization and fourth largest equity offering to date • IPO raised proceeds of $726 mn • Market capitalization of $2,741 mn • Final pricing at the Bt 31 and Bt 35 range • Currently trading at Bt 42 per share (02/0703)

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