Buriram Sugar (BRR), Thailand's third-cheapest sugar producer, has finalised the pricing of its initial public offering at Bt6.80 per share.
Khomklit Meekumsat, senior vice president and head of Capital Market at Kt Zmico Securities, the company's financial adviser, said that although institutional investors took part in the book-building survey organised to gauge demand for BRR stocks on October 22 and expressed interest in subscribing to the IPO at a price range of Bt6.80-Bt6.90, the company agreed to set the price at the lowest range, taking into account the current volatility in the stock market.
At this price, the IPO will offer a 25-per-cent discount on its appraised "fair value" and a 30-per-cent discount on the Stock Exchange of Thailand's current average price-to-earnings ratio of 17 times, he said.
The IPO subscription period has been set for tomorrow till Friday (Oct 29-31). BRR is scheduled to make its debut on the local bourse on November 6.
The company yesterday signed an agreement to appoint Kt Zmico as its lead arranger and underwriter and four other securities firms - Land and House Securities, CIMB Securities (Thailand), Finansia Syrus Securities, and Tisco Securities - as co-underwriters.
Anant Tangtongwechakit, chief executive officer of BRR, said the firm's most outstanding point is that last year it produced 118 kilograms of sugar from a tonne of sugarcane, making it the third highest-yield sugar mill in Thailand, after only Saha Ruang Mukdahan and Mitphol Kalasin factories. The average yield among more than 50 sugar mills in Thailand was about 109 kilograms per tonne of sugarcane.
This is because BRR's factory is surrounded by sugarcane plantations in a 40-kilometre radius, making its transportation cost lower than most other mills, he said.
"We are one of the few sugar mills that do not have to buy sugarcane from outside our zone," he said.
BRR's contribution from the energy business is expected to increase to 30 per cent next year, compared to less than 20 per cent at present, after it starts up its second biomass power plant with an 8-megawatt capacity during the early part of the year. The company is also studying prospects to enter the ethanol production business.
Khomklit said BRR's outstanding feature is its future growth prospects due to an expected expansion of sugarcane plantation in its zone and its further expansion into the energy sector, including electricity production from biomass, as the government is now trying to promote alternative energy industry.
The IPO of 169,182,500 shares will account for 25 per cent of the BRR's total outstanding shares after the IPO.
Proceeds from the IPO will be used to finance expansion of its sugar mill's production capacity to 20,000 tonnes per year, constructing the second biomass power plant, repaying its debt and for working capital.
During the 2013-14 harvest year, BRR crunched 1.77 million tonnes of sugarcane and produced 208,800 tonnes of sugar. The sugarcane feedstock is expected to be increased to 2.1 million tonnes this year and 2.5 million tonnes in the 2015-16 seasons, resulting in more sugar output and more by-products for supplying its fertiliser and energy businesses.
Anant said BRR expects to increase income from the energy business to more than 50 per cent within the next 3-4 years or earlier.
"At this sugar price level, it's more profitable to convert sugar for energy production," he said.
Nevertheless, Anant said the world's sugar prices are forecast to pick up next year, as demand has begun to outstrip supply, especially in Asia, which is a big consumer.
BRR expects to post double-digit growth this year and the next. It posted Bt205.56 million net profit on revenue of Bt4 billion last year. During the first half of 2014, the company booked Bt110.03 million net profit on revenue of Bt2.53 billion.
Anant said liberalisation of domestic sugar production would not affect BRR but it expects to benefit from regional trade liberalisation under the Asean Economic Community.