Infrastructure investment in ASEAN: Doors are open

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Thailand has made news recently with the announcement of a record IPO aimed at financing the expansion of Bangkok’s Skytrain, the elevated mass transit system that does help a lot to ease the city’s notorious traffic jams.

By Arno Maierbrugger

The capital raised by the so-called BTS Rail Mass Transit Growth Infrastructure Fund will be no less than $1.2 billion, which is the largest IPO ever by value in Thailand, one of the largest listing in Southeast Asia and comes at a time when the interest in Southeast Asian share sales is surging. The IPO prospectus has been filed on March 15 and showed commitments from 22 cornerstone investors, including Morgan Stanley Investment Management, Schroder Investment Management and the Thai unit of French insurer AXA Insurance, to buy at least $800mn worth of units when the fund goes public in mid-April.

According to Thailand’s listing rules, the issuer, BTS Group Holdings, must pay at least 90 per cent of its adjusted net profit as dividends to unit holders. The fund, designed as a business trust, will purchase a stream of Skytrain transit-fare revenue from BTS, providing trust unit-holders with a steady dividend payout.

While international investors have so far been hesitant to get engaged in large infrastructure projects in the region due to long return-on-investment cycles, the Skytrain fund seems to be a viable option for cash-rich GCC (Gulf Cooperation Council) investors to get involved in the region’s efforts to step up their infrastructure in order to support their rapidly growing economies.

Being a business trust, the Skytrain fund resembles a dividend stock. A business trust is a legal organisation set up for the control and management of assets and property, and the trustees manage the assets not for their own gain and benefit, but for the benefit of one or more beneficiaries. Thus, this kind of infrastructure investment reduces inherent risks of large investments over a long time with immediate returns.

The fund is also an alternative investment which offers exposure to growth from the expansion of the mass transit network in Bangkok and its vicinities. Other benefits for unit holders include a 10-years personal income tax exemption on dividends from the fund’s establishment date.

Infrastructure investing through such funds is possibly one of the most attractive ways to take part in the upswing of Southeast Asia’s economy, mainly for the predictable and reliable long-term cash flow streams as opposed to direct investment in infrastructure projects in the region.

As for diversification, it can be expected that a couple of such funds will come on the market in the region in the near future. Over the next decade, Asean economies will require approximately $60bn a year to fully address the region’s infrastructure needs. On a per capita basis, they have only a fraction of the roads and railways found in developed countries, and dramatically lower electricity and clean water coverage. So the doors are wide open for investors to participate.

This comment is part of Inside Investor’s weekly column series in Qatar’s leading newspaper Gulf Times and is published every Sunday.

Gulf Times

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Reading Time: 2 minutes

Thailand has made news recently with the announcement of a record IPO aimed at financing the expansion of Bangkok’s Skytrain, the elevated mass transit system that does help a lot to ease the city’s notorious traffic jams.

Reading Time: 2 minutes

Thailand has made news recently with the announcement of a record IPO aimed at financing the expansion of Bangkok’s Skytrain, the elevated mass transit system that does help a lot to ease the city’s notorious traffic jams.

By Arno Maierbrugger

The capital raised by the so-called BTS Rail Mass Transit Growth Infrastructure Fund will be no less than $1.2 billion, which is the largest IPO ever by value in Thailand, one of the largest listing in Southeast Asia and comes at a time when the interest in Southeast Asian share sales is surging. The IPO prospectus has been filed on March 15 and showed commitments from 22 cornerstone investors, including Morgan Stanley Investment Management, Schroder Investment Management and the Thai unit of French insurer AXA Insurance, to buy at least $800mn worth of units when the fund goes public in mid-April.

According to Thailand’s listing rules, the issuer, BTS Group Holdings, must pay at least 90 per cent of its adjusted net profit as dividends to unit holders. The fund, designed as a business trust, will purchase a stream of Skytrain transit-fare revenue from BTS, providing trust unit-holders with a steady dividend payout.

While international investors have so far been hesitant to get engaged in large infrastructure projects in the region due to long return-on-investment cycles, the Skytrain fund seems to be a viable option for cash-rich GCC (Gulf Cooperation Council) investors to get involved in the region’s efforts to step up their infrastructure in order to support their rapidly growing economies.

Being a business trust, the Skytrain fund resembles a dividend stock. A business trust is a legal organisation set up for the control and management of assets and property, and the trustees manage the assets not for their own gain and benefit, but for the benefit of one or more beneficiaries. Thus, this kind of infrastructure investment reduces inherent risks of large investments over a long time with immediate returns.

The fund is also an alternative investment which offers exposure to growth from the expansion of the mass transit network in Bangkok and its vicinities. Other benefits for unit holders include a 10-years personal income tax exemption on dividends from the fund’s establishment date.

Infrastructure investing through such funds is possibly one of the most attractive ways to take part in the upswing of Southeast Asia’s economy, mainly for the predictable and reliable long-term cash flow streams as opposed to direct investment in infrastructure projects in the region.

As for diversification, it can be expected that a couple of such funds will come on the market in the region in the near future. Over the next decade, Asean economies will require approximately $60bn a year to fully address the region’s infrastructure needs. On a per capita basis, they have only a fraction of the roads and railways found in developed countries, and dramatically lower electricity and clean water coverage. So the doors are wide open for investors to participate.

This comment is part of Inside Investor’s weekly column series in Qatar’s leading newspaper Gulf Times and is published every Sunday.

Gulf Times

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