THAI's bid for Nok puzzles observers

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THAI's bid for Nok puzzles observers 
Bangkok Post: 30 Aug 2010
TOURISM & AVIATION
THAI's Nok bid puzzles observers
Price offered is far below market value

Thai Airways International's intention to buy an additional stake in Nok Air from Krung Thai Bank in a bid to exert greater control over the budget carrier has been called into question.

Nok posted a first-half net profit of 445 million baht and aimed at 700 million baht for the full year, up from 364 million last year.

The flag carrier has offered only 13 baht each for the 500,000 Nok shares held by the state-controlled bank, compared with the current market value of 40 baht estimated by the industry.

That means the cost of expanding THAI's ownership to 49% from 39% would be only 6.5 million baht, said industry observers familiar with the subject.

Even if THAI paid the actual market value for the Nok shares, 40 baht apiece, the bill would be a mere 20 million baht.

Both amounts have been called "peanuts" for a company the size of THAI, with annual sales exceeding 100 billion baht.

Besides, THAI's management can authorise such amounts without board or government approval.

"It's unclear what kind of game THAI management is trying to play with this issue, which could actually be dealt with easily and with no fuss. After all, the Nok share transaction is indeed tiny," said one observer who asked not to be named.

The executive said it could only be assumed that THAI management was making the issue an excuse to justify its alliance with Singapore-based Tiger Airways to form another no-frills carrier in Thailand.

The flag carrier said that the 51:49 joint venture to form Thai Tiger Airways was aimed at recapturing the traffic opportunities lost to other low-cost carriers, especially within the region and specifically to Thai AirAsia.

THAI blames Nok for not moving fast enough to re-enter the regional market as early as next year as the flag carrier had mandated, due to its short-term focus on the domestic market and limited aircraft availability.

But THAI has at the same time sought to increase its stake in Nok to 49%. A proposal made on April 22 to buy all of KTB's Nok shares has never received an official rsesponse.

THAI president Piyasvasti Amranand told reporters last Thursday that the flag carrier remained firm in its plan to raise its stake to 49% and is prepared to pay 13 baht a share to KTB.

"It is absolutely impossible for THAI to get the shares at that ridiculous price," said another observer, especially given that Nok's business has recovered and the budget carrier has returned to profitability, thus bolstering its outlook.

KTB is aware of this and is not prepared to start talking to THAI about a sale until a more sensible offer is made.

Nok posted a first-half net profit of 445 million baht. It is optimistic of earning as much as 700 million baht for the full year, up from 364 million last year.

The budget carrier, in which THAI is already the largest shareholder, has resumed its growth plan to cash in on growing traffic demand by adding four B737-400 jets and two additional two ATR-72 turboprops in the near future.

Nok's current fleet consists of six 737-400s and two ATR-72s.

Earlier this month, KTB president Apisak Tantiworawong said the bank was prepared to dispose of its Nok shares to THAI if the price was right, in line with the bank's policy of shedding non-core businesses.

The other Nok shareholders - Dhipaya Insurance Plc (10%), the Government Pension Fund (10%), CPB Equity Co (6%), Siam Commercial Bank Plc (5%), the Thailand Prosperity Fund by ING Funds (Thailand) Co (5%), King Power International Co (5%) and individual investors (10%) - have not indicated any wish to sell their holdings.

http://www.bangkokpost.com/business/tourism/193648/thai-nok-bid-puzzles-observers