PTT: After the TomYumKung Disease

1
PTT After the Tom-Yum-Kung Disease

• February 24, 2003
• Piyaworn Chankanit
• Sunny Lo
• Jennifer Pawlowski
• Sam Shin

2
Agenda

• PTT and the Industry
• PTTEP
• EGAT
• Country Background
• Privatization Process
• Risk Assessment
• Valuation
• Recommendations
• IPO Update

3
Case Summary

• In November 2001, the Petroleum Authority of
  Thailand (PTT), privatized through the largest
  IPO in Thai history.

4
The Industry

• Oil Reserves
• Thailand has 300 mn barrels of proven oil
  reserves
• In 1997 107,000 barrels/day produced
• Natural Gas Reserves
• Proven in 2000 12,705 Bcf
• Probable/possible reserves 21,000 Bcf

5
PTT

• Operations began in 1978, state-owned enterprise
• Merger between Oil Fuel Organization and
  Natural Gas Organization
• Thailands only fully integrated gas and oil
  company
• Industry leader in marketing and distribution of
  gas and oil products

6
PTT

• Oil
• Purchased in/outside Thailand
• Customer distribution 1519 nationwide service
  stations
• Gas
• Principal processor and distributor
• Purchases from PTTEP and other producers in
  Thailand Myanmar
• Customer distribution large volume (power
  plants) and small volume (local vendors)

7
PTT Revenues
8
PTTEP

• Subsidiary of PTT, which has 61 equity interest
• Exploration and production of natural gas
• Owns 22 natural gas reserves
• In 2000, involved in 13 projects
• 9 with proven reserves, 5 exploratory
• 3 on shore, 10 offshore

9
EGAT

• Thailands principal state-owned power producer
• PTTs largest customer
• Approximately 13 of PTTs total 2000 revenue
• PTT highly dependent on EGAT sales to generate
  sufficient cash flows
• Reductions in EGAT demand highly affect PTT

10
PTT Value Chain
11
Pipeline Network
12
PTT Natural Gas Supply
13
Country Background

• Strong decade of economic growth pre-Asian
  financial crisis
• July 1997 Thai government floats currency (baht)
  resulting in immediate decline in value
• Spread of financial crisis to Asia and then
  global markets

14
IMF Involvement

• Post-Asian Crisis IMF granted 17.2 bn package to
  help institute economic reform
• Restructure financial sector, increase
  competitiveness, improve legal environment for
  business sector
• Thai government ordered to privatize many public
  industries
• PTT set for IPO in November 2001

15
PTT Privatization

• Original date in Q4 1998, but ultimately set for
  November 2001
• Expectations
• PTT established as holding company and listed on
  Thai Stock Exchange
• PTT would gradually sell off subsidiary holdings
• Raise 14 bn in first 3 years of privatization

16
PTT Strengths

• Dominant position in industry
• Integrated natural gas operations
• Gas earnings reduce exposure to oil price
  volatility
• Low cost and growing upstream operations
• Experienced management team

17
Risk Assessment
18
Discussion Points
19
Cost of Capital Calculation

• From ICCRC, the country rating of Thailand as of
  September, 2001 was 50.0
• Cost of Equity 21.00
• Risk Adjusted rE 17.00
• Cost of Debt 10.20
• Cost of Capital 12.23 (in 2002)

20
Valuation
21
Recommendation

• Macroeconomic conditions in 2001 much worse than
  today. Expected IPO price of Bt 37.5 65
  overestimated PTTs value.
• Our valuation indicates a proper value between Bt
  24.06 (FCFU) 31.64 (AE).

22
IPO Update

• November 22, 2001 Thailand secured largest
  privatization and fourth largest equity offering
  to date
• IPO raised proceeds of 726 mn
• Market capitalization of 2,741 mn
• Final pricing at the Bt 31 and Bt 35 range
• Currently trading at Bt 42 per share (02/0703)