BGC – Singha following the CP playbook.

So there is another capital increase occurring in the markets. This time its a consolidation play by Singha’s bottling firm, BGC.  

My first thought seeing this headline was…

“This is the perfect example of public companies that have access to capital buying up their competitors and taking over their market share, thereby strengthening the plc at the expense of the non-listed/sme players. at the end of this crisis period you’re going to see larger conglomerates dominating the landscape across multiple industries. A negative? Yes/no, for the Yes the answer is obvious, the no because then we’ll see another wave of entrepreneurship kick off again ,and hopefully seeing these conglomerates having to sell of their business units at discounts. then again this story line would definitely occur in the US capital markets, in Thailand (or the rest of the world) where families dominate the economies, who knows….”

Now after doing some homework on the acquisition (i.e. just reading the announcement properly and doing a bit of googling for an hour). This is the perfect example of major Thai groups using the capital markets to buy their private assets at inflated prices.

Here are some details:

  • BVP is manufacturer and distributor for paper packaging mainly to customers in food & beverage and logistics industries.
  • BGP is manufacturer and distributor for plastic packaging including PET (Polyethylene terephthalate) bottles, preform tubes, plastic caps, plastic crates, and plastic films for packaging labels.
  • KBI is manufacturer, distributor and importer float glass for various purposes including for architectural and automotive purposes, such as tempered glass and laminated glass. KBI is also a joint partner with Glas Trösch Holding AG who is a renowned glass manufacturer from Switzerland.

Details of its funding source are as follows: 

  • The company’s internal cash flow of Bt364m. 
  • Loan from financial institutions of no less than Bt1.5bn 
  • Capital increase via Right Offering of not more than Bt2.5bn 
  • Capital Increase from warrant exercise of not more than Bt700m 
  • Capital increase via general mandate for private placement of 69,444,400 shares

Acquisition Details:

  1. acquisition of 699,997 ordinary shares in Bangkok Visypak Company Limited, at a par value of THB 100 each, representing 100 percent of its total issued shares, with the total transaction value of share purchase at approximately THB 500 million, which will be settled in cash; 
  2. acquisition of 3,399,998 ordinary shares in BG Packaging Company Limited, at a par value of THB 100 each, representing 100 percent of its total issued shares, with the total transaction value of share purchase at approximately THB 1,150 million, which will be settled in cash; and 
  3. acquisition of 30,073,596 ordinary shares in Kabinburi Glass Industry Company Limited, at a par value of THB 100 each, representing 97.01 percent of its total issued shares, with the total transaction value of share purchase at approximately THB 2,328 million, which will be settled in cash.

Why do you say these are expensive acquisitions?

  • BVP’s profits in 2019 was (0.78) mn, 2018 11.98mn (paying THB 500mn!)
  • BGP  48.48 mn and 46.12 mn (paying THB 1.15 bn)
  • KBI -244 and -173 mn (paying THB 2.3 bn) 

No rational investor/business person would pay these stupid valuations. 

Will this go ahead?

  • Sure, the family group owns over 75%
  • But it does explain why the share price has dropped from 13 to 8 thb/share since this ridiculous acquisition has been announced.

Source: https://www.set.or.th/dat/news/202010/20116726.pdf

ICHI – Another insider case

Well, hat’s off to the SEC for doing their job, this time the wife, her sister, and the corporate secretary are smacked with fines for insider trading where they dumped shares back in 2017 before the financial results came out.

Source: https://www.sec.or.th/TH/Pages/News_Detail.aspx?SECID=8552

Howard Marks newsletter – Coming into focus

Andddd required reading yet again, his knack for stating what we are all thinking in easy to read language is impressive. There’s a lot of quotable insights made, but here’s the part I’ve found most interesting

Invest as you always have and expect your historic returns. Actually, this one’s a red herring. the things you used to own are now priced to provide much lower returns.

Invest as you always have and settle for today’s lows returns. This one’s realistic, although not that exciting a prospect.

Reduce risk in deference of the high level of uncertainty and accept even-lower returns. This makes sense, but then your returns will be lower still.

Go to cash at a near-zero return and wait for a better environment. I’d argue against this one. Going to cash is extreme and certainly not called for now. And you’d have a return of roughly zero while you wait for the correction. Most institutions can’t do that.

Increase risk in pursuit of higher return. This one is “supposed” to work, but it’s no sure thing, especially when so many investors are trying the same thing. The high level of uncertainty tells me this isn’t the time for aggressiveness, since the low absolute prospective returns don’t appear likely to compensate.

Put more into special niches and special investment managers. In other words, move into alternative, private and “alpha” markets where there might be more potential for bargains. But doing so introduces illiquidity and manager risk. It’s certainly not a free lunch.

Source: Oaktree

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