Sarath Ratanavadi, Thailand’s second-richest man, is trying to diversify his empire with a bold bet on digital technology that may cost as much as 53 billion baht.
He’ll have to do more to convince skeptics that the math adds up.
While shares of Mr Sarath’s Gulf Energy Development Plc (Gulf) have climbed 7.6% since the company proposed buying control of Thailand’s biggest wireless operator and its parent on Monday, some analysts and investors are worried the cost of added debt won’t be worth the payoff. The acquisitions would combine a group spanning power plants, ports and toll roads with telecom companies that specialisze in digital services.
“Gulf may know how to create the synergy, but some investors still haven’t seen this,” said Prapas Tonpibulsak, chief investment officer at Talis Asset Management, which doesn’t own Gulf shares. “Gulf’s debt will jump substantially.”
The conglomerate, controlled by the 56-year-old Sarath and his family, this week offered to purchase about 81% of InTouch Holdings Plc that it doesn’t already own in a deal amounting to 169 billion baht. Subject to securing at least 50% of InTouch, the group will also tender for 100% of Advanced Info Service Plc, the wireless service. For the latter deal, it will need an additional 365 billion baht. Gulf Energy’s net debt almost doubled to 120 billion baht last year, according to data compiled by Bloomberg.
Mr Sarath is the latest Asian energy billionaire to invest in technology-linked assets, joining the likes of Mukesh Ambani and Gautam Adani.
The tycoon founded Gulf in 2011 after working in the industry for more than a decade as a professional. Since listing in 2017, the company has diversified into deep-sea ports and tollways and expanded into Vietnam, Oman and Germany with power projects. Sarath’s net worth is US$9.3 billion (290 billion baht), according to the Bloomberg Billionaires Index.
In an April 19 statement sparse on details, Gulf said the acquisitions will generate long-term benefits and cash flows. It also said it will fund the two with internal cash and debt, and that it has already secured about 160 billion baht of loans. Shareholders will meet June 25 to consider the proposals.
Automation era
Adding InTouch, a holding company with presence in telecommunications, satellites and e-commerce, will allow Gulf ride the digital business with the post-pandemic era set to accelerate automation and work from home, said Smith Banomyong, Gulf’s chief of asset management and investment, who discussed the bids on April 19 in Bangkok on behalf of Mr Sarath.
“We have seen a lot of businesses have been disrupted by digital transformation and it will continue to be the order in the future,” Mr Smith said.
Suwat Sinsadok, an analyst at Finansia Syrus Securities, shared that optimism. He said power producers one day will be able to directly sell electricity to businesses and retail customers. AIS’s 40 million users could be a ready audience, he added.
Mr Sarath “has an aggressive vision to build Gulf as the region’s top infrastructure company,” Mr Suwat said. “The world in the future is about convergence, platform and big data. Gulf probably envisions that so it needs platforms and customer base.”
Unattractive offer
Gulf’s proposed offer of 122.86 baht apiece for AIS’s shares — a 31% discount to its current price — means the bid is unlikely to attract current shareholders, according to SCB Securities. AIS shares have rallied more than 6% since the offer was announced.
The buyout bid also casts uncertainty over the eventual shareholding structure of AIS, Fitch Ratings said on Monday. The rating company is likely to place the mobile phone operator’s on “watch” should the transaction lead to an eventual buyout, it said.
Talis Asset’s Mr Prapas said that while debt is a concern, the dividend yield of 3.9% from InTouch will be sufficient to cover Gulf's additional borrowings to finance the acquisition. Gulf’s interest cost for new loans would be no more than 3%, according to Mr Smith.
Mr Smith’s argument for a digital future didn’t convince Kaushal Ladha, an analyst at Maybank Kim Eng Securities (Thailand). He said there’s a lack of clear synergy between energy and telecommunications, and the cost of raising debt for the acquisition at 2% to 3% compared to InTouch’s dividend yield would mean “marginal value add” for Gulf.
“Gulf’s InTouch tender offer is a big surprise,” said Mr Ladha, who has cut his rating on the stock hold from buy. “We are very cautious. We need a clear picture of the latest deal.”