Saturday, October 20, 2007

Thailand’s BankThai shares tumble on dilution fear

Questions raised about fundamentals


Shares of BankThai Plc dropped 12.18% yesterday after the bank halved the price of its planned rights and doubled the number of shares on offer. BT closed on the Stock Exchange of Thailand at 2.74 baht, down 38 satang, in trade worth 43.64 million baht.

Analysts said the new rights offering would increase dilution for shareholders, and cautioned that the sharp decline in pricing could reflect undisclosed problems in the bank's balance sheet.

The bank, whose majority shareholders include the Financial Institutions Development Fund and TPG Newbridge, in May approved the issue of 2.24 billion new shares at a par value of 3.75 baht and an offer price of 3.46 through a 1:1 rights offering. The rights offering would raise 7.68 billion baht in new capital.

But board directors on Thursday acknowledged that the rights offering was impractical considering current market prices, as the stock was already trading 10% below the offer price.

Directors agreed to scrap the previous rights offering and instead double the amount of shares offered to 4.44 billion at 1.73 baht each. Existing shareholders registered as of Oct 26 would be offered two new shares for every one share held. The offering would boost registered capital to 25 billion baht from 8.34 billion.

While the revised offering would raise the same amount of capital, 7.68 billion baht, the increase in liquidity would significantly dilute existing shareholdings.

Any unsold shares can be offered in a private placement to the FIDF, TPG Newbridge and two other strategic institutional investors at 1.75 baht per share.

Sage Capital is the independent financial adviser for the offering, which is subject to approval at an extraordinary shareholders' meeting on Nov 16.

The placement of unallocated shares is considered a connected transaction and must be approved by three-quarters of shareholders attending the meeting, excluding the FIDF and TPG Newbridge.

As of April 25, the FIDF, a Bank of Thailand unit, was the largest shareholder of BankThai at 32.88%, followed by the private equity fund Newbridge at 24.99%.

Ratchanok Dandamrongrak, an analyst with Finansa Securities, said the new offering would reduce BankThai's book value per share by 34% due to the 67% dilution effect.

The post-offering book value would drop to 2.31 baht per share against 3.48 baht at the end of June, she said.

''And it could be even worse, once third-quarter losses are factored in. BankThai has yet to fully book the impact of the sub-prime crisis on its balance sheet. Among Thai banks, BankThai has the highest exposure to the market,'' Mrs Ratchanok said.

BankThai in the first half set aside 276.32 million baht in new provisions against possible losses on its $50-million investment in Coriolanus Series 39, a collateralised debt obligation (CDO) backed by US residential mortgage assets.

The Coriolanus CDO is part of 14.46 billion baht in investments made by BT in 14 CDOs as of the end of June, representing 6.48% of the bank's total assets. BankThai reported first-half profits of 44.17 million baht compared with losses of 1.08 billion in the first half last year.

Another analyst questioned the decision by the FIDF to accept the new offering. ''All this does is increase the losses incurred by the central bank. I think it's very possible that the ... pricing was set low in anticipation of further 'surprises' from the bank,'' he said.

''Not only does BankThai face growing concerns about the quality of its balance sheet and loan book, it also faces serious questions about its competitiveness and future business model.''

According to the central bank, BankThai had credit advances of 93.88 billion baht and total assets of 226.9 billion at the end of August. Non-performing loans at the end of June totalled 2.84 billion baht, or 2.93% of total loans after allowances for doubtful debt.

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