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Sarath Ratanavadi, Thailand’s second-richest man, is trying to diversify his empire with a bold back digital technology which will cost the maximum amount as $17 billion.
He’ll need to do more to convince skeptics that the maths adds up.
While shares of Sarath’s Gulf Energy Development Pcl have climbed 7.6% since the corporate proposed buying control of Thailand’s biggest wireless operator and its parent on Monday, some analysts and investors are worried the value of added debt won’t be well worth the payoff. The acquisitions would combine a gaggle spanning power plants, ports and toll roads with telecom companies that concentrate on digital services.
“Gulf may skills to make the synergy, but some investors still haven’t seen this,” said Prapas Tonpibulsak, chief investment officer at Talis Asset Management in Bangkok, which doesn’t own Gulf Energy shares. “Gulf’s debt will jump substantially.”
The Bangkok-based conglomerate, controlled by the 56-year-old Sarath and his family, in the week offered to get about 81% of Intouch Holdings Pcl that it doesn’t already own during a deal amounting to 169 billion baht ($5.4 billion). Subject to securing a minimum of 50% of Intouch, the group also will tender for 100% of Advanced Info Service Pcl, the wireless service. For the latter deal, it’ll need a further 365 billion baht. Gulf Energy’s net debt almost doubled to 120 billion baht last year, consistent with data compiled by Bloomberg.
Sarath is that the latest Asian energy billionaire to take a position in technology-linked assets, joining the likes of Mukesh Ambani and Gautam Adani.
The Thai tycoon founded Gulf Energy in 2011 after working within the industry for quite a decade as knowledgeable . Since listing in 2017, the corporate has diversified into deep-sea ports and tollways and expanded into Vietnam, Oman and Germany with power projects. Sarath’s net worth is $9.3 billion, consistent with the Bloomberg Billionaires Index.
In an April 19 statement sparse on details, Gulf Energy said the acquisitions will generate long-term benefits and cash flows. It also said it’ll fund the 2 with internal cash and debt, which it’s already secured about 160 billion baht of loans. Shareholders will meet June 25 to think about the proposals.
Adding Intouch, a company with presence in telecommunications, satellites and e-commerce, will allow Gulf Energy ride the digital business with the post-pandemic era set to accelerate automation and work from home, said Smith Banomyong, Gulf Energy’s chief of asset management and investment, who discussed the bids on April 19 in Bangkok on behalf of Sarath.
“We have seen tons of companies are disrupted by digital transformation and it’ll still be the order within the future,” Smith said.
Suwat Sinsadok, an analyst at Finansia Syrus Securities Pcl in Bangkok, shared that optimism. He said power producers at some point are going to be ready to directly sell electricity to businesses and retail customers. Advanced Info’s 40 million users might be a ready audience, he added.
Sarath “has an aggressive vision to create Gulf Energy because the region’s top infrastructure company,” Suwat said. “The world within the future is about convergence, platform and large data. Gulf probably envisions that so it needs platforms and customer base.”
Gulf Energy’s proposed offer of 122.86 baht apiece for Advanced Info’s shares — a 31% discount to its current price — means the bid is unlikely to draw in current shareholders, consistent with SCB Securities Co. Advanced Info shares have rallied quite 6% since the offer was announced.
The bid also casts uncertainty over the eventual shareholding structure of Advanced Info, Fitch Ratings said April 19. The rating company is probably going to put the mobile operator’s on “watch” should the transaction cause an eventual buyout, it said.
Talis Asset’s Prapas said that while debt may be a concern, the dividend yield of three .9% from Intouch are going to be sufficient to hide Gulf Energy’s additional borrowings to finance the acquisition. Gulf Energy’s interest cost for brand spanking new loans would be no quite 3%, consistent with Smith.
Smith’s argument for a digital future didn’t convince Kaushal Ladha, an analyst at Maybank Kim Eng Securities (Thailand) Pcl. He said there’s a scarcity of clear synergy between energy and telecommunications, and therefore the cost of raising debt for the acquisition at 2% to three compared to Intouch’s dividend yield would mean “marginal value add” for Gulf Energy.
“Gulf’s Intouch offer may be a big surprise,” said Ladha, who has cut his rating on the stock hold from buy. “We are very cautious. we’d like a transparent picture of the newest deal.”