Thailand ponders merger alternatives

22 January 1996 00:00  [Source: ACN]

TWO alternatives to an outright merger are now being considered by the Thai government instead of the original plan to merge Thailand's National Petrochemical Co (NPC) and Thai Olefin Co (TOC).

One proposal is for the Petroleum Authority of Thailand (PTT) - the major shareholder in NPC and TOC - to set up a holding company in which a management committee will oversee both NPC and TOC, which will continue to exist as separate corporate entities.

Another alternative is for NPC to acquire TOC's assets and make it an NPC subsidiary. An NPC official who requested anonymity told ACN: 'NPC cannot merge with TOC because a merger could result in NPC being delisted from the exchange.' He also said that if 'we want to achieve synergy, NPC has to have full control over TOC'.

Market reaction to the proposed merger has been negative, and the new proposals are largely seen as a way of easing investors' fears, Bangkok-based analysts told ACN. NPC shares dropped by almost 20% during the week that the proposed merger was announced.

Most analysts, however, said the share price drop was a 'knee-jerk reaction' to uncertainties over how the merger was to take place. Investors also thought the proposed merger would be a loss-making proposition for NPC as it would then have to bear TOC's losses. TOC began operations in June last year, and sustained losses of about Baht500m (US$19.8m) last year.

Visit Ongipattanaku, an analyst from James Capel, said he doubted whether a takeover would actually materialise. He said acquisition of TOC would mean a capital infusion of at least US$15bn, and NPC's other shareholders were unlikely to be able to raise enough cash for the exercise.

He also said it was 'unlikely that NPC's creditors for the NPC1 project would agree to a takeover without first revising NPC's special interest rates. With TOC in the picture, NPC has a higher credit risk.'

Key factors which are likely to determine the movement of NPC's share price over the next few months are the following: what the cost will be of taking over TOC and, should the merger push through, what the terms of the merger are. An NPC official also said another key factor is how the combined value of the companies will impact NPC's share price.

PTT has recently appointed Securities One and Siam Commercial Bank to study ways of implementing the merger.

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