Some financial commentators have written 2018 off as a disappointment. Among other things, they lament the lower number of initial public offerings (IPOs) compared with 2017, and an annual drop of 190 points, or 10.8%, in the SET index.
But after the success in October of the long-awaited IPO of the M150 manufacturer Osotspa, at least one prominent financial newspaper predicted a late resurgence of confidence in Thailand's capital markets.
If nothing else, these reports show that a company's decision to list on the stock market is based on much more than just business confidence, with fundamental motivations playing a key role, unaffected by market volatility.
The allure of raising new capital quickly and attaining a higher status among industry peers are just two such motivations for listing, not only among successful startups, but also among more established family-run conglomerates.
To realise these goals, it generally falls to the company's legal and financial advisers to provide the long-term planning, restructuring and legal compliance needed to go public.
Furthermore, expectations have to be properly managed, especially given the public nature of IPOs, otherwise unrealistic plans that do not materialise will be made known to the public.
For example, some may recall that the country's oldest consumer product conglomerate had to wait until the end of 2018 to be listed, after having first announced its intention to go public by early 2016.
UNDERSTANDING THE RULES
In an attempt to help companies understand the steps involved in going public, this article introduces the different entry requirements for listing on the Stock Exchange of Thailand (SET) versus the Market for Alternative Investment (MAI), with further articles to follow outlining the process of doing so in a roughly chronological order, from the planning stage, to the IPO, and then to submitting the application.
In dealing with a well-known subject, one may be expected to spare the reader from its more basic elements. But it is different if, as in the present case with IPOs, there is a disconnect between what people know about the benefits of being listed, which is common knowledge, versus an understanding of the processes involved in attaining that listing.
Thailand has two stock markets on which a public company can be listed -- the SET and the MAI. The SET is the premium exchange with entry requirements limited to companies that have a three-year track record prior to applying for listing, demonstrating either:
Combined net operating profits of at least 50 million baht over the past two or three years and net operating profits of at least 30 million for the latest full year; or
Market capitalisation following the IPO of at least 7.5 billion baht. This can be calculated by the IPO price times the number of outstanding shares if applying for listing within a year from the IPO, or calculated by a financial adviser if the listing application is more than a year after IPO. As well, earnings before interest and tax must be above zero both for the latest year and for the accumulated quarterly results from that year.
The company must have offered for sale shares representing at least 15% of its paid-up capital where paid-up capital is less than 500 million baht, or shares representing at least 10% of its paid-up capital where paid-up capital is more than 500 million baht (or 75 million baht in shares, whichever is higher).
Following the IPO, a company applying to list on the SET must also have a minimum of 300 million baht total shareholders' equity (the company's assets minus liabilities) and a minimum of 300 million baht in total paid-up capital (the amount of money the company received from shareholders in exchange for the shares).
Furthermore, it must have gained at least 1,000 minority shareholders (those holding less than 5% of the paid-up capital each and not related to the company), holding at least 25% of the paid-up capital, or holding at least 20% of the paid-up capital if it is at least 3 billion baht.
MAI REQUIREMENTS
The MAI is the secondary exchange with lower entry requirements compared with the SET. A public company must have a two-year track record prior to applying for listing, demonstrating either:
Combined net operating profits of at least 10 million baht over the past year and a net operating profit in the latest quarter; or
Market capitalisation following its IPO of at least 1 billion baht, together with earnings before interest and tax above zero both for the latest year and for the accumulated quarterly results from that year.
The company must have offered for sale shares representing at least 15% of its paid-up capital.
Following the IPO, a company applying to list on the MAI must also have a minimum of 50 million baht in total shareholders' equity and a minimum of 50 million in total paid-up capital.
Furthermore, it must have gained at least 50 minority shareholders with at least 25% of the paid-up capital, or holding at least 20% of the paid-up capital if it is more than 3 billion baht.
Calvin Wilkinson is a partner in the Corporate Services department at ICR. Please send comments to calvin.wilkinson@icr.co.th
