A Thai woman uses her mobile phone on a commuter skytrain in Bangkok on February 13, 2020. Photo: AFP/Mladen Antonov

BANGKOK – A move this week by Gulf Energy Development Company (Gulf) – Thailand’s leading private power provider – to take over InTouch Holding – the kingdom’s largest mobile phone service provider Advanced Info Service (AIS) – has raised more questions than answers among stock analysts.

On April 19, Gulf’s board of directors approved the investment in all InTouch shares at a tender offer of 65 baht (US$2.1) per share through trading on the Stock Exchange of Thailand (SET), with the tender good until July or August.

Gulf made a second tender offer for AIS shares at 122 baht per share, well below the current trading value, suggesting it was not serious about the bid. InTouch’s shares are currently trading at about 64 baht per share, so the first question on the deal is how many shares can Gulf snap up between now and July.

InTouch holds a 40.45% in AIS and a 41.13% stake in Thaicom, a satellite service provider, so if the Gulf takeover of the holding company succeeds it will also control InTouch’s two subsidiaries.  

InTouch is no stranger to takeover controversy in Thailand. Its former incarnation was Shin Corp, the telecom conglomerate founded by former Thai prime minister Thaksin Shinawatra, who now lives in self-exile.

In January 2006, while Thaksin was still prime minister, Shin Corp sold 49.6% of its Shinawatra-family-held shares to nominees of Temasek Holding – the Singapore government-held investment company – for $1.9 billion. The deal was exempt from capital gains because of Shin Corp’s holding company status.

Temasek was reportedly only interested in owning AIS, but if sold alone it would have been subject to Thailand’s capital gains tax. The sale, facilitated by a swift amendment to the Thai law governing foreign ownership in Thai telecom companies passed days before the transaction, sparked widespread anti-Thaksin protests that eventually led to his overthrow in a 2006 military coup.  

InTouch’s current shareholding comprises Gulf with 19%, Singapore Telecommunications Ltd (Singtel) with 21%, Temasek Holding with 5.2% and with the remaining 55% held by retail investors.

Thai mobile market penetration is among the highest in the region. Photo: iStock

For Gulf to gain the 50% of InTouch needed for majority control over the holding company and thus over AIS and Thaicom, it will need to buy more than 30% of the retail shareholdings between now and July.   

Should InTouch’s share value drop between now and July, Gulf’s tender offer may succeed in gaining a majority stake, but if the share price rises above 65 baht then shareholders would have little, if any, incentive to sell.  

Fitch Ratings Thailand, which provides a credit rating for AIS but not Gulf, is following the takeover bid closely.

“We are likely to take AIS’ rating on ‘watch’ if the transaction leads to an eventual buyout of AIS and a change in AIS’ shareholding structure,” said Mr. Obboon Thiracjit, a Fitch analyst. “We currently rate AIS based on its standalone credit profile,” he noted.

It remains unclear how Gulf plans to finance its takeover bid of InTouch, which has been priced at well over 150 billion baht ($4.7 billion), let alone its bid for AIS which would involve another 200 billion baht ($6.4 billion). 

“Gulf has a leading position in the domestic power sector and enjoys predictable cash flow from a long-term power purchasing agreement with the state-owned utility EGAT (Electricity Generating Authority of Thailand), but a debt-funded structure is likely to put additional pressure on Gulf’s stretched balance sheet,” said Obboon.

Gulf’s net debt/EBITDA (earnings before interest, taxes, depreciation and amortization) was high at 8.8 times, compared with AIS’s 1.0 times at year-end 2020, he added.

It is unclear among analysts whether Singtel would welcome the Gulf takeover, particularly given the heavy investments AIS will soon need to make in 5G upgrades of its mobile service.

“The tender offer would provide Singtel the financial flexibility to fund its 5G investment priorities and ease pressure on free cash
flow,” Obboon said.

Indeed, Singtel is unlikely to withdraw from AIS, as the Thailand-based operation contributes 20% to total dividends received and 5%-6% of adjusted group EBITDA inclusive of associate dividends, he noted.

AIS will need to make substantial new capital investments to make the leap to 5G. Picture: AIS website

“These investments offer a stable source of cash flow for Singtel, in light of AIS’s entrenched position and the stabilizing [mobile telecom] competition in Thailand,” Fitch’s Obboon said.

“Singtel faces intense rivalry in other key markets such as Singapore, Australia, Indonesia, the Philippines and India, contributing to slow recovery prospects over the next 12-18 months amid Covid-19 restrictions and structural challenges in the Australian fixed-line business.”

Gulf Energy Development brings plenty of capital firepower to the table. The energy giant was founded by current CEO Sarath Ratanavadi, who was ranked by Money & Banking magazine as Thailand’s richest shareholder in 2020 at 115 billion baht ($3.7 billion).

His career began at the Lanna Lignite Mining Company, from where he later moved to Siam City Cement and later struck out on his own after the 2006 coup, when the government started opening up the energy sector to Independent Power Producers (IPP).  

Besides owning 21 gas-powered IPPs with 5,800 megawatts of installed capacity, Gulf has recently diversified into infrastructure, taking a stake in the recently opened motorway from Bangpa-to Nakorn Ratchasima and an LNG (liquified natural gas) imports business under license.

Last year it bought stakes in wind farms in Germany and Vietnam, and in Thailand operates four solar rooftop power projects with a total installed capacity of 600 kilowatts. Despite the diversification drive, stock analysts still question the potential synergies between Gulf and InTouch.

At its conference with security analysts on April 19, Gulf executives claimed they will use AIS’ digital platform as infrastructure for its future electricity sales to retail customers once the Thai power sector is liberalized. Currently, all electricity sales are handled by the state-owned EGAT.

Gulf Energy Development founder Sarath Ratanavadi is among Thailand’s richest businessmen. Image: Twitter

Thailand has plans to liberalize the electricity sector to allow IPPs to sell direct to customers under its 20-year plan to reform parts of the economy. So far, though, both the coup-installed and elected administrations of Prime Minister Prayut Chan-ocha (2014 to 2021) have proven better at talking up reforms than implementing them.

Under the three-phase “smart grid road map” for liberalizing the power sector to allow private parties greater participation, the government will continue to play a supporting role, including in private research and development of pilot projects, microgrid and energy storage, and the application of smart grid technology in production, transmission and distribution.

“Private operators should be the key drivers during the initial stages of development,” said Ornmongkol Tantitanatorn, an analyst at Kasikorn Securities. “We expect the AIS digital platform would be one of the essential parts for expanding business to clients (B2C). It would provide the access and connection to end users,” he said.

One thing is certain: a takeover of InTouch will make Gulf a much bigger, much more powerful player in Thailand’s top-heavy business scene.

“I don’t find real synergies between the electricity and telecom sector except that Gulf wants to be the Number one mobile telecom operator in Thailand,” said one securities analyst who asked to remain anonymous.