Test Teflon

Telco IPO a soft test for Thailand's Teflon market

Thailand's latest big stock offering comes at an uncertain time. It's taking the military-government, which seized power last May, longer than expected to get the economy back on track. The delay threatens to take the steam out of the country's buoyant equity market. That's why Jasmine International's $1.2-billion offering of infrastructure assets needs a plump dividend to get away.

An unexpected slowdown in government spending, still-weak exports, and fears of deflation have pulled down growth forecasts. The central bank has cut its projection for GDP growth in 2015 from 4.8 per cent to 4 per cent. A move by the military legislature to ban ousted Prime Minister Yingluck Shinawatra from politics for five years and proceed with criminal charges against her for negligence could also test the country's fragile political calm.
 
Thailand's equity market tells a different story. The benchmark SET Index is around one quarter higher now than it was a year ago and continues to climb. Though foreign investors have turned sellers, low domestic interest rates have prompted a shift of domestic savings from bank accounts into mutual funds that channel funds into the stock market where dividend yields are closer to 3 per cent.

That's the backdrop against which Jasmine is trying to convince investors to subscribe to an offering which is relatively low-risk but large by Thai standards. After a year-long delay, the telecom group finally has regulatory approval to spin off its optical cables into a fund and then lease them back. Jasmine will use part of the proceeds to continue its expansion in a country where it forecasts broadband penetration will rise from less than 19 per cent in 2012 to over 35 per cent by 2018.

Yet the rising uncertainty has forced Jasmine to pay up. The fund is offering a generous forward yield of between 8.6 and 9 per cent. That's a decent premium to the 7 to 8 per cent forward yield for two similar listed infrastructure funds and enough to make it look attractive even if interest rates begin to rise elsewhere. It's a test Thailand's Teflon-like stock market should pass.