BTS SKYTRAIN

Background:
• 1997 IPO finally launched in 2013; Bangkok
Skytrain Concession (BTSC)
• Not IPO in BTSC but an offering of investment
units in BTSGIF – Thailand’s first publicly
listed infrastructure mutual fund(with the
proceeds it would acquire rights from BTSC to
the net fare box revenue )
• PPP model for infrastructure projects in
Bangkok’s transport sector.
 BTS SKYTRAIN

• Political instability – military coups & elected

government at national level
• 12 government agencies working under
several ministries made mandates to
implement transport projects – lack of unified
transport authority and centralized planning
led to redundant and some times competing
projects, miss-allocation of resources and
poor integration of transport system
 BTS SKYTRAIN

• BMA awarded 30 year concession to BTSC – 2

agreements : civil works (Italian – Thai) BTO
and electrical / mechanical (Siemens) works
on BOT model
• Asian Financial Crisis affects the project & its
main sponsor; defaults on loan secured by
shares – auction; battle for control of Skytrain;
lawsuit; bankruptcy rehabilitation;
restructuring; sponsor reacquired stake in
BTSC
 BTS SKYTRAIN
Business Model:
• Skytrain system, O & M (extensions), media
subsidiary (advertising & merchandising
activities on stations & trains) operation &
procurement of BRT buses & management of
bus stations, other mass transit projects.
• Key Concession Elements – automatic tariff
indexation & full fare renegotiation, first RoR
on system expansion, public support (land
supply by BMA, ……………………..
 BTS SKYTRAIN
explanation of taxes), sky train’s fare below
single person taxi cost but above buses (zone
based with monthly option passes), KPIs
(noise levels, service frequencies), Carve out
and the IPO of an Infrastructure Asset.
• BBL amc – IPO of BTSGIF to domestic &
international investors – price range with a
healthy premium on minimum asset sale
price
 BTS SKYTRAIN
• 19 Corner stonne investors (40.3%), BTSG as
fund Sponsor (33.3%), public offering
(26.4%); use of proceeds (BTSG acquire rights
to net fare box revenue, BTSC reduces net
debt and fund new MT projects, unlevered as
of IPO – source further capital (d to e 3:1)
• Market as yield – generating, tax efficient
(trust not subject to corporate tax and
dividends from trust not subject to personal
tax for 10 years… exposure to-
 BTS SKYTRAIN
growing rail infra sector; minimum annual
90% dividend (minimum 5.3% yield in first
year with future dividend growth)pay out
• Trust to secure future rights to BTSG group
infra projects
• Trust mandated to invest in infra assets
outside of BTSG group and outside infra assets
to generate additional income
• Benefit to BTSC shareholders (pursue new
projects annual incentive fee, revenue sale
requiring no concession …..
 BTS SKYTRAIN

transfer, tax benefit – treated as long term

debt financing with interest tax shield)

Valuation Frameworks:

• DCF as primary technique & multiples

approach as secondary
 BTS SKYTRAIN
Corporate Governance:
Infrastructure Funds:-
• Publicly – listed infrastructure funds via
investment trust structures popularised by
Macquarie and introduction of REIT structure
in U.S.
• Similar to REIT’s, infrastructure trusts &
stapled – trust provider investors of all types
to an asset class typically reserved of
institutions.
 BTS SKYTRAIN
• Singapore had monopoly on business trust
introduced in 2006 (of the 16 trusted list, 3
were infrastructure trusts in ports, waste – to
– energy assets, desalination plants;
infrastructure trusts incorporated in other
jurisdictions were also listed on the Singapore
Exchange
• Trust structure (this new range of securities)
enriched fund managers, sponsoring
institutions & advisors (mounting fees 2 to
20); excessive leverage, questionable
valuation technics
 BTS SKYTRAIN

and governance issues – several tripped into

receivership and many never traded above
their listed price
• Other ways of investing in infrastructure
besides listed funds :
 Private infrastructure funds,
 Direct Deals,by pension funds (CalPERS)
 Publicly traded companies
 Risks in BTSGIF …..
• 1) Infrastructure asset-
 Single source of income from farebox
 Rising cost of farebox
 Demand risk – passengers uncertainty
 Limited BTSG guarantee
 Future sales revenue – challenged by BTSG
stakeholders & creditors of BTSC
 Insurance shortfall
 FX –Siemens maintenance in diff currency
• 2) Infrastructure fund
 Difficult to remove BBL, fund manager
 Transaction complexity , transparency issue
 Delay in tax exemption application
 Risks in BTSGIF …..
• 3) Equity investment in Thailand -
 Political , Act of God , Terrorist
 Enforcement of agreements

• 4) Other risks in BTSGIF-

 Governance issues
 Buy-back of units option to BTSG-twice fare
 Excessive Valuation for new projects
 Enforcing BTSC /BTSGperformance difficult
 Governance issues in BTSGIF …..
• BBL: inexperience and difficult to remove
• ( competent & independent advisory committee
, can be replaced with 50%vote)
• BBL-SC:BBL can fire SC ( supervise investment ,
cashflows , compliances )

• BTSC: 1) improper operations & O&M costs, 2)

transfer of new projects at excess value ( board
seats and affirmative votes )
• BTSG:1 ) excess value of transferred projects 2)
buy-back of units at lower prices
• ( hold 33.33 % for 10 years ; alignment )
 Pros and Cons of Trust structure…..
• BBL/SC: P- Fees
• BTSGIF-P-no tax , no other business risk , more
cash distribution ;C- ownership of rights only ,
transparency due to complexity ,high fees ,
difficulty in removal of BBL
• Government :P-listing fees , stamp duties; C-
more parties to negotiate fares
• BTSC:P- dry powder , no debt , no equity
,incentive fee ,no delay due to concession sale, no
tax , tax shield ; C – trust cost , loss of farebox
• BTSG:P-like BTSC , option to buy-back ;C- share
pledge liability
 Trust Cost , Valuation , IPO
• Direct Cost : all fees 2.73% of amount raised
• Indirect Cost : monitoring behaviour due to
conflict of issues and governance
• Valuation :political risk adjustment should be in
cash flows ; 8% to 14% ( estimate from CDS
)discount for the 4 year election cycle
• WACC( only systematic risk ; not idiosyncratic )
(8.94% )- Rfr=3.8%, Rp=6.2%, Bequity=1.08,
Rdebt=5.3% , D:E=30:70
• IPO successful –BTSC raised capital for future
investment without increasing leverage or
diluting equity; BTSGIF risk due to reduced
farebox performance-political
 Trust Carve –out and IPO in BTSGIF
• Costly , Complex
• Well-crafted piece of financial engineering – no
tax bill , no transfer of concession ; lengthy
process , BTSC – upfront value , retain majority ,
no demand risk , option to buy back
• Wealth transfer from unitholders of BTSGIF to
BTSG shareholders