Court short-circuits giant Thai
energy IPO By 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.
