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Privatisation momentum critical

As more state enterprises list, management transparency and predictability of returns come under scrutiny

By all benchmarks, the government's privatisation drive has made a roaring start, with overwhelming demand for share offerings of both Internet Thailand and PTT Plc.

Solid fundamentals, reasonable pricing and strong marketing support from the government helped both stocks during both their initial public offerings and in secondary market trade.

The government hopes that the momentum can continue next year, when telecom giants, the Telephone Organisation of Thailand and the Communications Authority of Thailand, hold their own IPOs and list on the market.

By 2003, the government plans to list 16 state enterprises on the Stock Exchange of Thailand, part of a broader plan to raise state asset values and improve efficiency in public services.

State enterprises are no strangers to the market. Large-cap stocks such as Krung Thai Bank, PTT Exploration and Production and Thai Airways International have been long-time bulwarks of the exchange.

A look at the performances of listed state enterprises reveals few common threads. For some firms, such as Thai Airways or East Water, the stocks lack any direct listed competitors, making analysis difficult.

Financial institutions, such as Krung Thai Bank, the Industrial Finance Corp of Thailand or Siam Commercial Bank, show shareholder returns on par with their private counterparts, reflecting the overall macro-economic downturn.

On the other hand, companies such as National Petrochemical have delivered consistently high returns ahead of the sector average, whether on a one-year or five-year horizon.

In several cases, investors face a dilemma: shareholder returns can gain from the monopoly power enjoyed by several state enterprises and their close ties to regulators and government agencies.

Yet governance and efficiency questions can also hurt returns, particularly going forward as market liberalisation policies take hold.

Company boards generally remain dominated by technocrats and political appointees, raising the prospects of retail shareholders seeing their interests subordinated to boarder political and social development goals.

State enterprises in the banking and energy sectors, for instance, have long had to implement policies aimed more at satisfying political goals rather than corporate profits, whether it be in interest rate or lending policies or how petrol prices are set.

Viroj Nualkhair, the president of Krung Thai Bank, said such "interference" was inevitable so long as the state maintained majority control.

"Whether it's the government or a private investor, the fact is that if a single party dominates shareholdings and the board, then you have to be concerned about whether minor shareholders will be protected," he said.

Investors in Krung Thai Bank have actually benefited greatly from its position as a state bank. In 1998, the government agreed to carve 530 billion baht in bad loans away from the bank, saving the institution from potential bankruptcy.

Now the government has directed the bank, the country's largest in the number of branches, to take a lead role in lending, particularly to small and medium-sized businesses. "It's an opportunity for us to gain over our competitors after being at a disadvantage for a long time," Mr Viroj said. "Right now, the biggest spender in the economy is the government. So that gives state-owned banks an advantage."Another stock, PTT Exploration and Production, has seen similar benefits from state policy, profiting from natural gas sales to other state-owned power producers.

Another energy firm, Bangchak Petroleum, barely merits a passing grade. Analysts say the firm is struggling in the highly competitive retail fuel market, while its refinery operations have been hurt by ageing equipment and lower efficiency than at private refineries.

The country's national carrier, Thai Airways, saw its balance sheet ravaged by the 1997 float of the baht and fluctuations in global oil prices.

The stock recently hit historical lows, hurt by infighting among management and board directors, prompting the Finance Ministry to announce some weeks ago it would postpone any new share offering until 2003.

- Cholada Ingsrisawang