Bangkok Expressway

Bangkok Expressway Plc (BECL)

Investment thesis

The future growth prospects of both BECL and BMCL are enhanced by their planned merger, we believe. In the meantime, we anticipate that the respective pre-amalgamation share prices of the two firms will be dictated by the swap ratio. The current share prices of both BECL and BMCL already reflect the equilibrium point of the swap ratio (Figure 2). As such, pre-merger share price movements will be limited by the the ratio. 

Amalgamation with BMCL

On January 21, BECL’s board of directors approved merging the firm with Bangkok Metro Plc (BMCL). In the amalgamation, the shares in MergedCo will be allocated to BECL’s and BMCL’s respective shareholders in the following ratios—one existing share in BECL to 8.65537841 shares in MergedCo and one existing share in BMCL to 0.42050530 shares in MergedCo. The planned merger is subject to a shareholder vote at the AGM on April 2, 2015 (the XM date is March 2). MergedCo shares are expected to list on the SET in August 2015 (see details in Figure 1). 

Merger will be mutually beneficial for BECL and BMCL

BECL has a strong balance sheet and access to cheap debt, but a paucity of investment opportunities, while there is a slate of planned mass transit lines for which BMCL could make tenders if it had greater financial capacity. The amalgamation would enable the merged entity to invest in new mass transit projects at a lower cost of debt than BMCL could as a standalone entity (and obviate the need for BMCL to recapitalize). It is planned that MergedCo will bid for the following mass transit lines—Pink, Orange and Yellow. These projects are expected to be approved by Cabinet during 1Q15, in which case they should open to tender this year. 

Another benefit of the amalgamation is that the market positions of the two firms would improve as a merged entity. Being profitable and with a market capitalization of over Bt78m, we would expect MergedCo to be added to the SET50.   

Expect extra gain from sale of BMCL shares  

BECL’s board of directors also approved the sale of 2,050m shares in BMCL that it currently holds at a price of Bt1.79 apiece (Bt3,670m in total) to CH. Karnchang Plc (CK), which is one of the conditions of the amalgamation. We preliminarily estimate that BECL will recognize an after-tax gain of about Bt1bn from selling its BMCL shares.