Translation
Translation
At
54/2550
Date
22 October 2007
Re
Opinion of Independent Financial Advisor Regarding Connected Transaction of BankThai Public Company Limited
Attn
Board of Directors and Shareholders BankThai Public Company Limited
Whereas the Extraordinary General Meeting of the Shareholders no. 1/2007, held on 30 May 2007, approved the allocation of 2,224.90 million of newly issued shares of BankThai Public Company Limited (“BT” or the “Company”) to the existing shareholders (Rights Offering) at the ratio of 1 existing share to 1 new share at the price of 3.46 Baht per share, and to some existing shareholders in a private placement offering at the price of 3.48 Baht per share. Subsequently, BT did not offer the shares for sale according to the approval as prior to registering a capital increase of 2,224.90 million shares, it was obliged to register the capital reduction according to the resolution from the Annual General Meeting of the Shareholders on 24 April 2007. In this regard, under the Public Limited Companies Act, BT is required to submit any resolution regarding capital reduction to all creditors of the Company and to allow said creditors to object to the capital reduction within 2 months from the date of receipt of the said resolution. The last date for sending notice to the creditors was 8 May 2007. Therefore, the last date for submitting objections was 9 July 2007. After such expiry date, the Company had registered the capital reduction via par value reduction on 10 July 2007, registered the capital reduction via cancellation of all preferred shares issued to support the warrants on 12 July 2007, and registered the capital increase on 13 July 2007. After the completion of the aforementioned process, the market situation turned unfavorable to the offering of shares at the price approved by the shareholders’ meeting (BT’s market price on the Stock Exchange of Thailand (the “SET”) during 2 October 2007 – 10 October 2007 was 3.107 Baht per share, which was lower than the previous offering price of 3.46 Baht per share to the existing shareholders). Therefore, the Company deemed that if the offering was taken during that period, such capital increase may affect the funding to be used for its business operation as proposed for approval from the shareholders’ meeting. Accordingly, to create stability and strengthen business operations, competitiveness and capital sufficiency for BT’s business expansion, the Board of Directors’ meeting no. 19/2007, held on 11 October 2007, deemed appropriate to propose to the shareholders for approval on the cancellation of the resolutions relating to the above capital increase and on the allocation and offering of 4,449.80 million of newly issued shares to the existing shareholders whose names are registered as shareholders in the shareholders’ registrar book as of 26 October 2007 in proportion to each shareholding (Rights Offering). The remaining shares after the rights offering will be offered in private placement, provided that the amount of proceeds from such capital increase will be the same amount of capital previously approved by the Extraordinary General Meeting of the Shareholders no. 1/2007 (approximately 7.68 billion Baht), via the issuance and offering of 4,449.80 million shares, which is twice the amount approved by the Extraordinary General Meeting of the Shareholders no. 1/2007 by using the ratio of 1 existing share to 2 new shares, and the price per share, i.e. 1.73 Baht per share, is one half of the price previously offered to the existing shareholders (such an offering price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the
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Translation Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price of the rights offering and not be lower than 1.00 Baht per share). Details regarding this proposal for capital increase to the Extraordinary General Meeting of the Shareholders no. 2/2007, to be held on 16 November 2007, as compared with the capital increase as previously approved by the shareholders’ meeting on 30 May 2007 can be summarized as follows: This Capital Increase Previous Capital Increase Obtained approval on 30 May Date of shareholders’ To be held on 16 November 2007 2007 meeting Share offering to the existing shareholders on a pro rata basis according to each shareholding (Rights Offering) No. of ordinary 4,449.80 million shares 2,224.90 million shares shares issued and offered Rights offering 1 existing share to 2 new shares 1 existing share to 1 new share ratio Offering price 1.73 Baht per share (such price may 3.46 Baht per share be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price of the rights offering and not be lower than 1.00 Baht per share) Share offering to specific investors via private placement offering No. of ordinary The remaining shares after the rights The remaining shares after the shares issued and offering rights offering offered Specific investors The existing shareholders of BT The existing shareholders of to which shares and/or other private placement BT and/or specific existing may be allotted investors, i.e. the Financial shareholders with holdings of Institutions Development Fund (the more than 10% of BT’s issued “FIDF”), TPG Newbridge Group by shares which may include the Newbridge Sukhothai Netherlands FIDF B.V. and/or other investment vehicle of TPG Newbridge Group (“Newbridge”), Blum Strategic III BT Hong Kong Limited (“Blum”), MSOF Hong Kong BT Limited (“MSOF”) and/or other existing
2
Translation
Offering price
Offering period
This Capital Increase shareholders (altogether to be referred to as “Private Placement Investors”) 1.75 Baht per share (such price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price for the private placement and not be lower than 1.00 Baht per share and the offering price of the rights offering) The Board of Directors shall complete the offering within 12 months of the date of approval of the shareholders’ meeting
Offering price Should the price be equal to 1.75 compared with the Baht per share, such price will be market price equal to 56.32% of the weighted average closing price during the past 7 business days prior to the date BT’s Board of Directors passed the resolution. It is, therefore, likely that the offering price may be lower than the market price by more than 10%. Accordingly, the offering of newly issued shares at the below market price should be proposed to the shareholders’ meeting for approval.
Previous Capital Increase
3.48 Baht per share
The Board of Directors shall complete the offering within 12 months of the date of approval of the shareholders’ meeting The offering price of 3.48 Baht per share equals 90.08% of the weighted average closing price during the past 7 business days prior to the date BT’s Board of Directors passed the resolution.
However, if there is no allotment of unsubscribed shares in a private placement or if the shares are not sold in full, the Board of Directors may propose this matter to the next shareholders’ meeting to cancel all remaining shares and to decrease registered capital by the amount of the number of unsold shares. According to the above resolutions from the Board of Directors’ meeting, should there be any existing shareholders of BT who do not exercise their rights to subscribe for the increased capital under the rights offering and the remaining shares are allotted to the FIDF and Newbridge, BT’s existing major shareholders holding more than 10% of BT’s registered and paid-up capital while the allotted shares may be greater than 3% of net tangible assets
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Translation (NTA), such transactions with the FIDF and Newbridge will be considered connected transactions pursuant to the Notification of the Board of Governors of the Stock Exchange of Thailand Regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, B.E. 2546. Accordingly, BT will be obliged to disclose information of the transactions to the SET and to seek approval from the shareholders’ meeting. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote, excluding those shareholders with interest in the transaction, must be obtained. The FIDF, Newbridge, Blum and MSOF will not have the rights to vote on related agenda. In addition, the offering to Newbridge will be permitted upon BT’s compliance with the notifications of the Securities and Exchange Commission, the SET, and any related rules and regulations, including the approval from the Ministry of Finance allowing Newbridge to hold more than 24.99% of BT’s shares. Furthermore, comparing the price of 1.75 Baht per share with the weighted average closing price of BT’s shares during the past 7 business days prior to the date BT’s Board of Directors passed the above resolution, i.e. 2 – 10 October 2007, it is likely that the private placement offering price of the remaining shares after the rights offering may be lower than the market price by more than 10% pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543. As a result, the Board of Directors deemed appropriate to propose to the shareholders’ meeting for approval. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote must be obtained while no more than 10% of total votes of the shareholders present at the meeting shall object this share offering. The FIDF, Newbridge, Blum and MSOF will not have the rights to vote on related agenda. The date to determine the offering price of the remaining increased capital to Private Placement Investors at this time will be the first offering date of the remaining unsubscribed shares to the Private Placement Investors. Therefore, the calculation of the percentage of the offering price of the remaining shares to the market price cannot be calculated at this moment. The calculation of value of the transaction is based on the probability that the remaining increased capital in which some of BT’s existing shareholders do not exercise their rights to subscribe for the offering of increased capital to BT’s existing shareholders will be offered to the FIDF and Newbridge using the closing price on the date prior to the date the Board of Directors resolved to propose to the shareholders for approval on the new capital increase (the maximum number of shares used in calculating value of the transaction is determined under an assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). It is found that value of the transaction of the FIDF will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. Value of the transaction of Newbridge will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. It is, therefore, possible that value of the transactions will be greater than 3% of value of BT’s net tangible assets. Accordingly, BT will be obliged to disclose information of the transactions to the SET and to seek approval from the shareholders’ meeting. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote, excluding those shareholders with interest in the transaction, must be obtained. The meeting of BT’s Board of Directors resolved to propose to the Extraordinary General Meeting of the
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Translation Shareholders no. 2/2007 which will be convened on 16 November 2007 to consider the approval to enter into the aforementioned connected transactions of the Company. Accordingly, BT has appointed Sage Capital Limited (“Financial Advisor”) to act as independent financial advisor to provide opinion to the shareholders on the reasonableness, fairness of the price and condition of the transaction. The Financial Advisor has considered such transactions based on information and materials supplied by BT together with information provided to public, including the resolutions of BT’s Board of Directors approving the entering into such transactions, BT’s financial statements, BT’s list of shareholders, BT’s list of the Board of Directors, Affidavit, annual registration statement (“Form 56-1”), 5-year financial projections as prepared by the management, as well as the interviews with BT’s management and related officers and other related documents. Nevertheless, opinion of the Financial Advisor is provided based on the assumption that the information and assumptions supplied are reliable, complete and accurate, and are not amended or altered from those received by the Financial Advisor. It is also provided based on the economic conditions and information made aware of during the time of the study only. Therefore, should such factors be significantly changed, BT may be affected from such change accordingly and therefore it may affect the opinion of the Financial Advisor as provided herein. Appropriate price of the remaining increased capital from the rights offering which is further offered to Private Placement Investors by BT may thus also be changed. In evaluating BT’s share, the Financial Advisor has considered the offering price of the shares based on 5 valuation approaches, namely, book value approach, adjusted book value approach, market value approach, market comparable approach and dividend discount model approach. Appropriate approaches used in the valuation of BT’s shares are market value approach and dividend discount model approach. Appropriate value of the share ranges from 1.65 – 3.12 Baht per share. Furthermore, the shares to be offered to the Private Placement Investors are the remaining shares after subscription of the existing shareholders while BT intends that the offering price to the Private Placement Investors will be higher than the price offered to the existing shareholders. It is, therefore, considered the decision of the existing shareholders not to exercise their subscription rights. It is not the intention of BT to issue the new shares to be offered to the Private Placement Investors. However, current offering price of 1.75 Baht per share is less than 90% of the weighted average closing price of BT’s shares during the period of 7 business days prior to the date the Board of Directors approved such capital increase which was equal to 3.107 Baht per share. This, therefore, may be considered the offering of the newly issued shares at low price pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543 Regarding Application and Approval of the Offering of Newly Issued Shares. The Financial Advisor views that the shareholders should resolve to approve the entering into these connected transactions as current offering price of 1.75 Baht per share is within the range of the share prices derived from the valuation of the Financial Advisor of 1.65 – 3.12 Baht per share. However, if there is any negative change in market conditions that changes the offering price to be lower than 1.65 Baht per share, such offering price will be lower than the appropriate price. Additionally, the FIDF is the major shareholder of BT and has always provided support to BT’s business operation in the past. The offering to Newbridge, an expert with considerable experiences in financial services business, will help ensure that the
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Translation Company will obtain continual support from Newbridge and its co-investors. Also, this offering of the increased capital is the offering of the remaining shares from the rights offering to the Private Placement Investors in which BT intends that the offering price will be higher than the price offered to the existing shareholders. Therefore, this private placement offering will help ensure that proceeds from capital increase will be sufficient for BT’s business expansion and its operation according to the plan. Various issues on the provision of the Financial Advisor’s opinion can be summarized as follows:
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Translation
1.
Background
BankThai Public Company Limited is the consolidation of Union Bank of Bangkok Public Company Limited, 12 intervened finance companies1 and Krungthai Thanakit Finance Public Company Limited2 pursuant to the order of the governmental entity on 14 August 1998, resolution from the Cabinet on 27 October 1998 and notification of the Ministry of Finance dated 22 December 1998. The consolidated entity subsequently changed the name to “BankThai Public Company Limited”, resulting in the establishment of a new commercial bank on 21 December 1998. The FIDF acquired major shareholding of BT. Subsequently, the SET approved trading of BT’s ordinary shares on the SET since 30 March 2001 by using “BT” to be the trading sign. Details of BT’s major developments can be summarized below. The Bank of Thailand (the “BOT”) issued an order to the Union Bank of Bangkok Public Company Limited to reduce its registered capital via par value reduction from 10 Baht per share to 0.01 Baht per share, resulting in a decrease of the registered capital of the Union Bank of Bangkok Public Company Limited from 1,800 million Baht to 1.8 million Baht. The BOT then ordered that the Union Bank of Bangkok Public Company Limited increase its registered capital from 1.8 million Baht to 12,334 million Baht through an issuance of increased ordinary shares totaling 1,233,220 million shares at 0.01 Baht per share, all of which being allotted to the FIDF. As a result, the bank’s registered and paid-up capital amounted to 12,334 million Baht with the FIDF being 100% shareholder. Its capital fund was also sufficient to serve the measure of consolidation among the Union Bank of Bangkok Public Company Limited, 12 intervened finance companies and Krungthai Thanakit Finance and Securities Public Company Limited, the core of consolidation to be converted into the new commercial bank, with the FIDF being major shareholder since then. Consolidation approach pursuant to the resolution of the Cabinet on 27 October 1998 and the notification of the Ministry of Finance on 22 December 1998 was:
To transfer all assets and liabilities of 12 intervened finance companies to Krungthai Thanakit Finance and Securities Public Company Limited.
To transfer all assets and liabilities of Krungthai Thanakit Finance and Securities plc. to the Union Bank of Bangkok Public Company Limited.
Upon completion of both of the above processes, Krungthai Thanakit Finance and Securities Public Company Limited and 12 intervened finance companies shall return the financial business licenses to the Ministry of Finance accordingly. The Union Bank of Bangkok Public Company Limited, on 21 December 1998, changed its name to BankThai Public Company Limited.
1
Consisting of: Nava Finance and Securities Plc. Thai Summit Finance and Securities Co., Ltd. Mahatun Finance Co., Ltd. Bangkok Asian Finance Co., Ltd. 2
Vajiradhanathun Finance Co., Ltd. Erawan Trust Co., Ltd. Progressive Finance Co., Ltd. Dhana Siam Finance and Securities Plc.
First City Investment Plc. Ksit Finance and Securities Plc. Union Asia Finance Plc. IFCT Finance and Securities Plc.
Previously named Krungthai Thanakit Finance and Securities Public Company Limited.
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Translation In year 1999 BT changed par value of the ordinary shares from 0.01 Baht per share to 10 Baht per share and increased additional shares of 40,000 million Baht via issuance of noncumulative preferred shares, convertible into ordinary shares and entitled to be affected from capital reduction after the ordinary shares in the amount of 4,000 million shares at par value of 10 Baht per share. The allotment is made through a private placement to the FIDF for the entire amount at the price equal to par value, i.e. 10 Baht per share. The FIDF has made payment for 3,706.80 million shares at the price of 10 Baht per share totaling 37,068 million Baht. As a result, BT’s registered capital increased to 52,334 million Baht and the issued shares to 49,402 million Baht with the FIDF being 100% shareholder. Subsequently in year 2000, BT reduced its registered capital by 2,932 million Baht by canceling un-issued preferred shares and increased its registered capital via the issuance of ordinary shares totaling 260.05 million shares with the par value of 10 Baht per share. Such increased capital was allotted through a private placement offering to the shareholders of Krungthai Thanakit Finance Public Company Limited at the price of 5.6184 Baht per share. The purchase was paid with the ordinary shares of Krungthai Thanakit Finance Public Company Limited. Value of the bank’s ordinary shares, as appraised by BT, was equal to 1.3566 Baht per share, resulting in share swap ratio of 0.2414478 BT’s share per 1 share of Krungthai Thanakit Finance Public Company Limited. After such share swap, BT’s registered and paid-up capital stood at 52,002.5 million Baht with the FIDF being major shareholder holding 5,145.3 million shares (1,438.5 million ordinary shares and 3,706.8 million preferred shares), accounting for 98.94% of total issued shares. During the second half of year 2000, BT conducted in compliance with its approach of compensation of non-performing assets as approved by the Cabinet on 19 September 2000. It made a capital reduction via cancellation of the entire preferred shares and returned a total preferred share capital of 37,068 million Baht to the FIDF to relieve the FIDF’s burden and to adjust the amount of capital to appropriate level. BT recorded the FIDF as creditor and issued the promissory notes to the FIDF, payable within 1 January 2006. It had gradually made partial repayment of 15,068 million Baht of the promissory notes in cash. The remaining amount of around 22,000 million Baht was mutually agreed by the FIDF and BT to set off against the compensation of the non-performing assets transaction BT recorded as receivables from the FIDF under the gain/loss sharing and yield maintenance agreement. BT had fully set off such amount at the end of year 2005. Additionally, as the FIDF had been a sole absorber of burden incurred from the financial difficulty and capital increase of BT in the past, to provide an opportunity to the FIDF to be compensated from an improvement in BT’s business status and operation, on 9 May 2001 BT issued 10-year warrants to purchase its preferred shares (“Warrants”) totaling 3,706.80 million units maturing on 8 May 2011 to the FIDF without cost. The Warrants have transfer restriction, i.e. they cannot be transferred. One Warrants unit can be converted into 1 BT’s preferred share at the price of 10 Baht per share. BT increased its registered preferred share capital by 3,706.80 million shares at the value of 10 Baht per share as full reserve for such Warrants and had registered with the registrar of the public limited company. BT’s registered capital was thus equal to 52,002.50 million Baht, consisting of 1,493.45 million ordinary shares at par value of 10 Baht per share and 3,706.80 million preferred shares at par value of 10 Baht per share. Its issued shares stood at 14,934.50 million Baht with the FIDF being major shareholder holding total issued ordinary shares of 1,438.45 million shares, accounting for 96.32% of BT’s total ordinary shares.
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Translation
In year 2002 the FIDF decreased its shareholding in BT pursuant to the government’s privatization policy through disposal of 707 million of BT’s ordinary shares held by the FIDF to public. Accordingly, its shareholding in BT declined from 96.32% to 48.98% of BT’s total shares. In term of Warrants issued to the FIDF, to prevent the effect to BT’s share prices and to limit the FIDF’s holding in BT’s shares not to exceed 50% of total issued shares, BT’s Board of Directors meeting no. 13/2002 held on 28 August 2002 resolved to approve the repurchase of Warrants in order to cancel such Warrants. Warrant buyback option agreement (the “Agreement”) was endorsed by BT and the FIDF on 23 September 2002 together with a payment of 300 million Baht to the FIDF as compensation for its granting of the above repurchase rights3. Major terms and conditions of such Agreement can be summarized as follows:
The FIDF agrees to grant the rights to buy back Warrants at the price of 0.27907 Baht per unit, plus interest which is calculated from BT’s average cost of interest on all type of deposits commencing from 23 September 2002 to the buyback date.
Exercise period commences from 23 September 2002 to 8 May 2010.
The FIDF agrees not to exercise its conversion rights for the duration of the exercise period of BT. At the end of the repurchase period, if BT does not exercise its rights to repurchase the Warrants, or does not fully exercise the rights over 3,706.80 million units, the FIDF may exercise its rights to convert the remaining Warrants into preferred shares in accordance with the original conditions of the Warrants.
The repurchase rights must be exercised only in order to cancel the Warrants. BT cannot transfer such Warrants to other person.
To strengthen the capital structure and to increase future competitiveness, BT’s Extraordinary General Meeting of the Shareholders as convened on 3 October 2006 and 21 November 2006 passed the resolutions approving an offering of increased capital of BT. Later on, BT’s Board of Directors meeting no. 5/2007 held on 3 March 2007 resolved to approve the allotment of increased ordinary shares and determine the offering price of increased ordinary shares to a group of new investors, i.e. Newbridge, Blum and MSOF (“Group of New Investors”), in the total amount of 731.45 million shares at the price of 4.17 Baht per share. After the Annual General Meeting of Shareholders passed the resolution on 24 April 2007 granting a waiver of tender offer for all securities of the Company to such Group of New Investors, the Group of New Investors has completed the acquisition of BT’s shares on 25 April 2007. Accordingly, BT’s current registered capital stood at 61,402.50 million Baht, consisting of 2,433.45 million ordinary shares at par value of 10 Baht per share and 3,706.80 million preferred shares at par value of 10 Baht per share, and issued and paidup capital at 22,249.00 million Baht. Newbridge is a major shareholder holding 556.22 million ordinary shares, accounting for 24.99% of issued shares while Blum and MSOF each
3
On 16 February 2007, BT’s Board of Directors passed the resolution retrospectively approving the accrual of Warrants buyback transaction at a total repurchase price of 1,034.46 million Baht plus interest in accordance with the conditions stipulated in the Agreement. Interest calculated up to 31 December 2006 amounted to 111.18 million Baht or a total of 1,145.64 million Baht. BT had already realized payment of Warrants buyback directly against retained deficits of the financial statements for the year 2006. After obtaining approval from the Extraordinary General Meeting of the Shareholders on 30 May 2007, purchase of such Warrants from the FIDF is now completed.
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Translation holds 87.61 million ordinary shares, accounting for 3.94% of issued shares per person. As such, shareholding percentage of the FIDF declined to 32.88% of the issued shares.4 Additionally, in the meeting on 27 February 2007, the Cabinet acknowledged the increase of BT’s additional capital of 2,224.90 million shares in form of an offering of ordinary shares to the existing shareholders at the ratio of 1:1, and allowed BT to decrease its capital via a reduction of par value to eliminate retained deficits and share discount to enable BT to make dividend payment. After obtaining approval from the shareholders’ meeting and the Ministry of Finance, BT, on 10 July 2007, reduced its par value from 10 Baht per share to 3.75 Baht per share. As a result, its registered capital is reduced to 23,025.94 million Baht, comprising 2,433.45 million ordinary shares and 3,706.80 million preferred shares, and issued and paidup capital to 8,343.38 million Baht. Subsequently, as approved by the shareholders’ meeting on 30 May 2007, on 12 July 2007 BT reduced its capital via cancellation of 3,706.80 million preferred shares issued to support the Warrants which were bought back from the FIDF, and the remaining unsold ordinary shares of 208.55 million shares. Additional capital of 2,224.90 million shares was registered on the next day, resulting in a change in BT’s registered capital to 16,686.75 million Baht, divided into 4,449.80 million ordinary shares at par value of 3.75 Baht per share, and issued and paid-up capital to 8,343.38 million Baht, divided into 2,224.90 million shares at par value of 3.75 Baht per share. BT’s action according to the plan to strengthen its capital structure and increase its competitiveness in the future can be summarized as follows:
4
On 22 May 2007, Newbridge transferred 222,490 shares to Blum in order to comply with the determined percentage holding of Newbridge. Accordingly, at present Newbridge and Blum holds 556.00 million shares and 87.84 million shares, accounting for 24.99% and 3.95% of the issued shares, respectively.
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Translation Completed
Capital increase to the Group of New Investors, i.e. Newbridge, Blum and MSOF, in the amount of 731.45 million shares, at par value of 10 Baht per share, or 32.88% of BT’s total issued shares after capital increase, at the price of 4.17 Baht per share totaling 3,050.15 million Baht. - Annual General Meeting of the Shareholders on 24 April 2007 granted a waiver of tender offer of all securities of the Company to such Group of New Investors. - On 25 April 2007 the acquisition of BT’s shares and payment for the said shares by the Group of New Investors to BT was complete. BT’s issued and paid-up capital hence increased from 14,934.50 million Baht to 22,249 million Baht.
Completed
Reduction of registered capital via par value reduction from 10 Baht per share to 3.75 Baht per share - Obtained approval from the Annual General Meeting of the Shareholders on 24 April 2007. - Completed the registration of capital reduction to the Ministry of Commerce on 10 July 2007 after no creditors file an objection within 2 months from the date the notification letter of resolution was received and after an approval from the Ministry of Finance was granted. After such reduction of registered capital, issued and paid-up capital of BT declined from 22,249 million Baht to 8,343 million Baht.
Completed
Repurchase of 3,706.80 million units of Warrants to purchase preferred shares from the FIDF at the price of 0.27907 Baht per unit, plus interest which is calculated from the average cost of BT’s interest on all types of deposits from 23 September 2002 to the buyback date. - Obtained approval from the Extraordinary General Meeting of the Shareholders on 30 May 2007. - Made payment on for the repurchase of Warrants to the FIDF on 30 May 2007. - Completed the registration of capital reduction via cancellation of preferred shares and all remaining unsold shares of 3,706.80 million shares and 208.55 million shares, respectively, on 12 July 2007, resulting in a decrease in BT’s registered capital from 23,026 million Baht to 8,343 million Baht.
Agenda to be proposed for cancellation
Offering of increased capital to the existing shareholders totaling 2,224.90 million shares with the par value of 3.75 Baht per share at the ratio of 1:1 - Obtained approval from the Extraordinary General Meeting of the Shareholders on 30 May 2007 at the offering price of 3.46 Baht per share, and should there be any remaining shares from the rights offering, the Board of Directors is authorized to allot the said remaining shares through private placement offering to specific existing shareholders at the price of 3.48 Baht per share. - Completed the registration of capital increase to the Ministry of Commerce on 13 July 2007, resulting in the increase in registered capital from 8,343 million Baht to 16,687 million Baht.
Agenda to be proposed for approval
Offering of increased capital to the existing shareholders totaling 4,449.80 million shares with the par value of 3.75 Baht per share at the ratio of 1:2 - Obtained approval from the Board of Directors’ meeting on 11 October 2007 to reduce the unsold registered capital and to increase the registered capital to 25,030 million Baht at the offering price of 1.73 Baht per share at the ratio of 1 existing share to 2 new shares, totaling 4,449.80 million of newly issued shares. - The meeting of BT’s Board of Directors resolved that should there be any remaining shares from the rights offering, BT may allot the remaining shares to Private Placement Investors at the price of 1.75 Baht per share. - If there is any negative change in market conditions, the Board of Directors or the President or any persons as designated by the Board of Directors shall be empowered to amend or change the offering price, provided that the new offering price shall not be higher than the determined offering price to the existing shareholders in proportion to each shareholding (Rights Offering) and in a private placement, provided that such price shall not be lower than 1.00 Baht per share while the private placement offering price shall not be lower than the rights offering price. - Will propose to the Extraordinary General Meeting of the Shareholders no. 2/2007 to be convened on 16 November 2007 for approval. It is expected that the capital increase will complete within December 2007. After capital increase, BT’s issued and paid-up capital will increase from 8,343 million Baht to 25,030 million Baht (under the assumption that the increased shares are fully allotted).
11
Translation On 11 October 2007, the meeting of BT’s Board of Directors no. 19/2007 passed the resolution approving the proposal to the shareholders’ meeting to consider approval of the allotment of the newly issued ordinary shares to the existing shareholders on a pro rata basis according to their respective shareholding percentage at the ratio of 1 existing share to 2 new shares at the price of 1.73 Baht per share (such price may be amended if the shareholders’ meeting resolves to empower the Board of Directors or the President or any persons as designated by the Board of Directors to amend or change the offering price if there is any negative change in market conditions. However, the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price to the existing shareholders in proportion to each shareholding (Rights Offering), provided that such price shall not be lower than 1.00 Baht per share.). Such price may be lower than the market price by more than 10% pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543. To ensure that BT will obtain proceeds from this offering of increased capital in the amount according to BT’s business plan in full while the process can be completed shortly, BT’s Board of Directors’ meeting resolved to approve the proposal to its shareholders’ meeting to seek approval on the allotment and offering of the remaining shares from capital increase in which some existing shareholders of the Company do not exercise their rights to subscribe for the above increased capital to BT’s existing shareholders and/or some existing shareholders holding more than 10% of BT’s registered and paid-up capital and/or other private placement investors at the price of 1.75 Baht per share (such price may be amended if the shareholders’ meeting resolves to empower the Board of Directors or the President or any persons as designated by the Board of Directors to amend or change the offering price if there is any negative change in market conditions. However, the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price in a private placement, provided that such price shall not be lower than 1.00 Baht per share and the rights offering price.). Such price may be lower than the market price by more than 10% pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543. The FIDF and Newbridge will be ones of the shareholders allotted with the said remaining shares. Value of these transactions is calculated under the possibility that the remaining shares from capital increase in which some existing shareholders of the Company do not exercise their rights to subscribe for the increased capital to BT’s existing shareholders to the FIDF and Newbridge based on the closing price on the date prior to the date the Board of Directors deemed appropriate to propose to the shareholders for approval on new capital increase (the maximum number of shares used in calculating value of the transaction is determined under the assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). It is found that value of the transaction of the FIDF will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. Value of the transaction of Newbridge will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. It is, therefore, possible that value of the transactions with the FIDF and Newbridge will be greater than 3% of value of BT’s net tangible assets. Such transactions are then considered connected transactions pursuant to the Notification of the Board of Governors of the SET. As a result, BT will be obliged to seek approval of the transactions from BT’s Board of
12
Translation Directors, to disclose information of the transactions to the SET, and to seek approval from the shareholders’ meeting. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote, excluding those shareholders with interest in the transaction, must be obtained. 2.
Nature and Detail of the Connected Transactions
2.1 Date, Month and Year of the Transactions BT will proceed to offer the remaining shares from rights offering in which some of BT’s existing shareholders may not exercise their subscription rights to Private Placement Investors, which may include the FIDF and Newbridge, after the number of the remaining shares after the subscription of increased capital offering to BT’s existing shareholders is known (which is expected to be completed within December 2007), and after Newbridge obtains approval from the BOT and the Finance Minister allowing Newbridge to hold more than 24.99% shares (the result is expected to be known within December 2007). It is expected that the process should be completed within December 2007. 2.2 Type and Size of the Connected Transactions The offering of the remaining shares from increased capital offering to the existing shareholders of BT in which some of the existing shareholders do not exercise their rights to subscribe for the rights offering to the FIDF and Newbridge is considered connected transaction relating to assets and service category pursuant to the Notification of the Board of Governors of the SET Regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, B.E. 2546. Value of the transaction with the FIDF Maximum value of such transaction is assessed based on calculation method of the transaction value regarding assets and service by comparing the maximum amount of proceeds which may be obtained from the FIDF using the closing price as at 10 October 2007 which is the date prior to the date the Board of Directors resolved to propose to the shareholders for approval on the new capital increase (the maximum number of shares used in calculating value of the transaction is determined under the assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge) totaling around 1,975.97 million Baht with value of BT’s net tangible assets. Details are illustrated below: (Unit: million Baht) Maximum value of the transaction
=
Transaction value Value of net tangible assets*
=
1,975.97 * 100 (7,681.90 – 725.04)
13
Translation
=
28.40%
* Value of net tangible assets is calculated from BT’s consolidated financial statements as at 30 June 2007 (audited by the auditor).
Value of the transaction with Newbridge Maximum value of such transaction is assessed based on calculation method of the transaction value regarding assets and service by comparing the maximum amount of proceeds which may be obtained from Newbridge using the closing price as at 10 October 2007 which is the date prior to the date the Board of Directors resolved to propose to the shareholders for approval on the new capital increase (the maximum number of shares used in calculating value of the transaction is determined under the assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge) totaling around 1,975.97 million Baht with value of BT’s net tangible assets. Details are illustrated below: (Unit: million Baht) Maximum value of the transaction
=
Transaction value Value of net tangible assets*
=
1,975.97 * 100 (7,681.90 – 725.04)
=
28.40%
* Value of net tangible assets is calculated from BT’s consolidated financial statements as at 30 June 2007 (audited by the auditor).
Based on the calculation method of transaction value pursuant to the Notification of the Board of Governors of the SET Regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, B.E. 2546, value of the above transactions regarding assets and service with the FIDF and Newbridge is greater than 20 million Baht and more than 3% of net tangible assets value. Accordingly, to comply with the requirements of the notification of the Board of Governors of the SET, BT is obliged to seek a resolution from its shareholders’ meeting to consider the approval to enter into such transactions. At least three fourths of total votes of the shareholders or proxies present at the meeting and having the rights to vote must be obtained, provided that the shareholders with interest in the transactions will not be entitled to cast a voting to approve the entering into such transactions. 2.3 Related Counterparty and Relationship with BT Issuer of the increased shares:
BankThai Public Company Limited
Potential offeree of the remaining increased shares:
1. Financial (FIDF)
Institutions
Development
Fund
14
Translation
Description of relationship: -
Shareholding, whether direct or indirect, by major shareholders or authorized person of BT FIDF is BT’s major shareholder holding 32.88% of total issued and paid-up capital after acquisition of the increased capital by the Group of New Investors as at 9 May 2007.
-
Other relationship The Ministry of Finance5 has assigned 1 person, i.e. Mr. Pongpanu Svetarundra, as its representative to take a position of BT’s director. The FIDF has assigned 1 person, i.e. Mrs. Saowanee Suwannacheep, as its representative to take the position of BT’s director.
2. TPG Newbridge by Newbridge Sukhothai Netherlands B.V.6 Description of relationship: -
Shareholding, whether direct or indirect, by major shareholders or authorized person of BT Newbridge Sukhothai Netherlands B.V. is BT’s major shareholder holding 24.99% of total issued and paid-up capital after the acquisition of the increased capital by the Group of New Investors as at 9 May 2007.
-
Other relationship Newbridge has assigned 4 persons, i.e. Mr. Ranvir Dewan, Mr. Daniel Carroll, Mrs. Watanan Petersik and Mr. Daniel Poon, as its representatives to take the position of BT’s directors.
Therefore, there are 6 directors not entitled to attend the meeting concerning the allotment of the remaining shares not subscribed by some of the existing shareholders in the future and to cast the voting in BT’s Board of Directors meeting in the agenda regarding approval of an assignment of the rights to the FIDF and Newbridge to subscribe for the remaining increased shares, namely Mr. Pongpanu Svetarundra, Mrs. Saowanee Suwannacheep, Mr. Ranvir Dewan, Mr. Daniel Carroll, Mrs. Watanan Petersik and Mr. Daniel Poon (there are 6 directors who attended the meeting of BT’s Board of 5
The Ministry of Finance assigned its representative to participate in the Executive Board of Directors of the FIDF while the FIDF is responsible to report the accounting audit results to the Finance Minister and inform the Bank of Thailand. 6 Changed its name from Centerpoint Media Investment Netherlands B.V. to Newbridge Sukhothai Netherlands B.V. on 9 May 2007.
15
Translation Directors no. 19/2007 on 11 October 2007 in such agenda, namely Mr. Tawee Butsuntorn, Mr. Phirasilp Subhapholsiri, Mr. Preecha Oonchitti, Mr. Techapit Sangsingkeo, Mr. Dharin Divari and Mr. Chatchawal Eimsiri whereas Mr. Techapit Sangsingkeo, Mr. Dharin Divari and Mr. Chatchawal Eimsiri were the Audit Committee). 2.4 Total Value of Considerations and Term of Payment In case where the FIDF and Newbridge are granted the rights to subscribe for the remaining increased capital, each of the FIDF and Newbridge will be obliged to make payment for the remaining increased capital after the offering to BT’s existing shareholders in the maximum amount of approximately 1,115.47 million Baht within the determined timeframe which is expected to be within December 2007. 2.5 Details of the Securities Type of securities
Offering price
Number of ordinary shares The FIDF Newbridge Amount of proceeds to be paid The FIDF
Newbridge
: The remaining increased ordinary shares in which some of BT’s existing shareholders may not exercise their subscription rights for the rights offering : 1.75 Baht per share, which may be amended if there is any negative change in market conditions. However, the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price in a private placement, provided that such price shall not be lower than 1.00 Baht per share and the rights offering price. : 0 – 637.41 million shares 0 – 637.41 million shares : 0 – 1,115.47 million Baht using the offering price of 1.75 Baht per share in calculating the maximum amount of proceeds to be paid 0 – 1,115.47 million Baht using the offering price of 1.75 Baht per share in calculating the maximum amount of proceeds to be paid
The above maximum number of shares which may be allotted to the FIDF and Newbridge under the private placement offering is calculated under the assumption that all of the other shareholders apart from the FIDF, Newbridge, Blum, MSOF and BT’s subsidiaries holding BT’s ordinary shares do not exercise their rights to subscribe for the increased shares offered to BT’s existing shareholders and the entire remaining shares from such rights offering are equally offered to the FIDF and Newbridge. Details of the calculation are summarized below: Total number of increased shares offered under the = rights offering
4,449.80 million shares
16
Translation Less: The number of shares allotted to the FIDF according to its shareholding percentage The number of shares allotted to Newbridge according to its shareholding percentage The number of shares allotted to Blum according to its shareholding percentage The number of shares allotted to MSOF according to its shareholding percentage The number of shares allotted to BT’s subsidiary according to its shareholding percentage Maximum number of the remaining shares after the rights offering (1) 50% of (1)
=
1,462.90 million shares
=
1,112.01 million shares
=
175.67 million shares
=
175.22 million shares
=
249.18 million shares
=
1,274.82 million shares
=
637.41 million shares
2.6 Preliminary Information of BT, the Financial Institutions Development Fund and Newbridge Sukhothai Netherlands B.V. BankThai Public Company Limited -
Nature of Business: BT has been licensed by the Ministry of Finance and the relevant competent authorities to engage in commercial banking business, with focus on taking deposits and extending loans, together with other business which generates fee and service incomes such as financial consulting services and other financial products.
-
Registered and Paid-up Capital: After registration of the capital increase of 2,224.90 million shares to the Ministry of Commerce on 13 July 2007, BT’s current registered capital stood at 16,686.75 million Baht or 4,449.80 million ordinary shares at par value of 3.75 Baht per share. Total issued and paid-up capital equals 8,343.38 million Baht, comprising 2,224.90 million ordinary shares at par value of 3.75 Baht per share.
-
Shareholding Structure: Top 10 shareholders as at 9 May 2007, i.e. the closing date of register book to determine the rights to attend the Extraordinary General Meeting of the Shareholders no. 1/2007, can be listed as follows: No. 1. 2. 3. 4. 5. 6.
Name of Shareholders FIDF Newbridge Sukhothai Netherlands B.V.* Thailand Securities Depository Co., Ltd. for Depositor Blum Strategic III BT Hong Kong Limited* Citigroup Global Markets Inc. for MSOF Hong Kong BT Limited Pannasub Co., Ltd.
No. of Shares 731,450,194 556,002,558 89,662,424 87,835,063 87,612,573 74,672,500
% 32.88 24.99 4.03 3.95 3.94 3.36
17
Translation No. 7. 8. 9. 10. 11.
Name of Shareholders Thanachart Capital Public Company Limited BT Securities Company Limited for Investment and BT Securities Company Limited Social Security Office Krungthai Thanakit Finance Public Company Limited Others Total
No. of Shares 74,550,000 73,817,646
% 3.35 3.32
63,159,300 50,772,000 335,365,936 2,224,900,194
2.84 2.28 15.06 100.00
* Changed its name from Centerpoint Media Investment Netherlands B.V. to Newbridge Sukhothai Netherlands B.V. As at 9 May 2007 which is the closing date of shareholders’ register book, Newbridge held 556,225,048 shares. Subsequently on 22 May 2007, it transferred 222,490 shares to Blum in order to comply with the determined percentage holding of Newbridge. Accordingly, Newbridge’s holding was reduced to 556,002,558 shares while Blum’s holding was increased to 87,835,063 shares.
-
BT’s Board of Directors: List of BT’s latest Board of Directors (“BOD”) as at 5 October 2007 are as follows: Name of the BOD
Title
Note
1
Mr. Tawee Butsuntorn
Chairman of the Board
-
2
Mr. Phirasilp Subhapholsiri
President
-
3
Mr. Preecha Oonchitti
Director
-
4
Mr. Pongpanu Svetarundra
Director
Ministry of Finance’s representative
5
Mrs. Saowanee Suwannacheep
Director
The FIDF’s representative
6
Mr. Ranvir Dewan
Director
Newbridge’s representative
7
Mr. Daniel Ashton Carroll
Director
Newbridge’s representative
8
Mrs. Watanan Petersik
Director
Newbridge’s representative
9
Mr. Daniel Dak Bong Poon
Newbridge’s representative
10
Mr. Techapit Sangsingkeo
-
11
Mr. Dharin Divari
Director Chief of Audit Committee, Independent Director Audit Committee, Independent Director
12
Mr. Chatchawal Eimsiri
Audit Committee, Independent Director
-
-
Whereby Adjunct Professor Prasit Kowilaikul and Mr. Richard C. Blum act as Advisors to the BOD and Mr. Thaphop Kleesuwan as Secretary to the BOD.
-
Summary of BT’s Financial Status and Operating Performance
Revenue Structure -
Consolidated Financial Statements 2005 Million Baht
%
2006 Million Baht
%
Jan – Jun 2007 Million % Baht
Interest and dividend income Loan Interbank and money market items Investment
4,697.44
45.08
7,649.89
48.39
3,882.27
42.66
272.57
2.62
598.35
3.78
653.42
7.18
2,219.30
21.30
5,055.03
31.97
2,684.11
29.50
18
Translation
Hire purchase and financial contracts
2005 Million Baht 124.06
Yield maintenance income
1,525.96
14.64
-
-
-
-
Total interest and dividend income
8,839.33
84.83
13,795.77
87.26
7,523.79
82.68
268.58
2.58
313.76
1.98
600.58
6.60
- Acceptances, aval and guarantees
120.78
1.16
133.86
0.85
68.82
0.76
- Others
700.98
6.73
817.87
5.17
398.83
4.38
(28.35) 273.67
(0.27) 2.63
20.77 -
0.13 -
(40.89) 232.39
(0.45) 2.55
15.52 -
0.15 -
69.00 344.21
0.44 2.18
-
-
229.89
2.21
314.39
1.99
316.45
3.48
1,581.07
15.17
2,013.86
12.74
1,576.18
17.32
10,420.40
100.00
15,809.63
100.00
9,099.97
100.00
% 1.19
2006 Million Baht 492.50
% 3.12
Jan – Jun 2007 Million % Baht 303.99 3.34
Non-interest income 1. Gain on investment 2. Fees and charges
3. Gains (losses) on exchange rate 4. Gains on disposal of properties foreclosed 5. Gains on derivatives 6. Reversal of impairment loss on premises 7. Other income Total non-interest income Total income
-
Separate Financial Statements 2005 Million % Baht
2006 Million Baht
Jan – Jun 2007 Million % Baht
4,703.98
47.39
7,760.96
50.76
4,047.77
47.11
286.02
2.88
665.34
4.35
645.93
7.52
Investment
2,206.04
22.23
5,046.02
33.00
2,569.23
29.90
Yield maintenance income
1,528.55
15.40
-
-
-
-
Total interest and dividend income
8,724.59
87.90
13,472.32
88.11
7,262.93
84.53
253.43
2.55
599.33
3.92
226.51
2.64
- Acceptances, aval and guarantees
120.78
1.22
133.86
0.88
68.82
0.80
- Others
461.12
4.65
557.19
3.64
704.96
8.20
(12.83) 289.04
(0.13) 2.91
89.77 -
0.59 -
(40.89) 163.50
(0.48) 1.90
-
-
344.21
2.25
-
-
89.22
0.90
93.67
0.61
206.74
2.41
1,200.76
12.10
1,818.02
11.89
1,329.64
15.47
%
Interest and dividend income Loan Interbank and money market items
Non-interest income 1. Gain on investment 2. Fees and charges
3. Gains (losses) on exchange rate 4. Gains on disposal of properties foreclosed 5. Reversal of impairment loss on premises 6. Other income Total non-interest income
19
Translation 2005 Million % Baht Total income
9,925.35
100.00
2006 Million Baht 15,290.34
Jan – Jun 2007 Million % Baht
% 100.00
8,592.57
100.00
Summary of Financials and Financial Ratios Consolidated 31 Dec 06
31 Dec 05
30 Jun 07
31 Dec 05
Separate 31 Dec 06
30 Jun 07^
Financials Total assets
Million Baht
269,838
217,796
223,956
269,175
218,243
223,301
Short-term investment – net
Million Baht
8,107
1,861
20,282
7,904
1,563
20,016
Long-term investment – net * Investment in subsidiaries and associated companies – net Total investment – net
Million Baht Million Baht
56,019 203
77,393 153
72,725 197
55,976 1,298
74,467 1,585
70,010 1,667
Million Baht
64,329
79,407
93,204
65,178
77,615
91,693
Loans
Million Baht
140,167
102,980
103,504
137,449
102,664
101,033
Accrued interest receivables
Million Baht
4,475
791
797
4,376
428
526
Allowance for doubtful debts Revaluation allowance for debt restructuring
Million Baht Million Baht
(24,789) (196)
(7,564) (134)
(9,263) (109)
(22,425) (181)
(3,681) (119)
(5,404) (95)
Loans and accrued interest receivables – net
Million Baht
119,657
96,073
94,930
119,219
99,292
96,060
Investment
Loans and accrued interest receivables
Total liabilities
Million Baht
261,273
213,512
216,209
260,690
212,753
214,402
Deposits
Million Baht
194,447
181,219
166,000
194,573
181,319
166,379
Shareholders’ equity
Million Baht
8,565
4,284
7,747
8,485
5,491
8,899
Issued and paid-up capital
Million Baht
14,935
14,935
22,249
14,935
14,935
22,249
Share discount
Million Baht
(1,124)
(1,124)
(5,388)
(1,124)
(1,124)
(5,388)
Million Baht
6
6
6
6
6
6
Retained earnings (deficit) Appropriated – legal reserve Deficit
Million Baht
(2,849)
(8,524)
(8,487)
(2,849)
(8,524)
(8,528)
Total retained earnings (deficit)
Million Baht
(2,843)
(8,518)
(8,481)
(2,843)
(8,518)
(8,522)
Interest and dividend income
Million Baht
8,839
13,796
7,524
8,725
13,472
7,263
Total income
Million Baht
10,420
15,810
9,100
9,925
15,290
8,593
Net profit (loss)
Million Baht
611
(4,423)
44
611
(4,423)
3
Non-performing loans
Million Baht
7,188
8,178
11,484
7,011
3,913
7,227
Basic earnings (losses) per share
Baht
0.48
(3.32)
0.03
0.48
(2.96)
0.00
Book value per share **
Baht
6.96
3.09
3.66
6.96
3.68
4.00
Rate of interest income
%
4.58
6.76
4.39
4.60
2.92
4.31
Rate of interest expense
%
2,14
3.61
2.33
2.14
1.50
2.32
Interest rate spread
%
2.44
3.15
2.06
2.46
1.42
1.99
Return on assets (ROA)
%
0.24
(1.81)
0.04
0.24
(1.81)
0.00
Return on equity (ROE)
%
7.54
(68.85)
1.47
7.57
(63.30)
0.08
Net profit (loss) margin
%
5.87
(27.98)
0.97
6.16
(28.93)
0.03
Total capital adequacy ratio
%
-
-
-
8.56
5.95
9.17
Tier I capital to risk assets ratio
%
-
-
-
8.45
4.12
6.18
Major Financial Ratios
20
Translation ^
From 1 January 2007 onwards, BT’s accounting policy regarding recording of the investments in subsidiary and associated companies in the separate financials from equity method to cost method in order to comply with the Thai Accounting Standards No. 44 and 45 (revised). BT’s separate financial statements for the period ended 31 December 2006 were revised to be used in the comparison as if the Company has continued to adopt cost method in recording the investments in subsidiary and associated companies. * As at 30 June 2007, BT had foreign currency denominated debt investments which have been classified as the held-tomaturity investments totaling approximately USD 1,438 million or equivalent to 49,652 million Baht, consisting of structured notes and collateralized debt obligation (CDO) of 38,255 million Baht and 11,397 million Baht, respectively. Due to subprime crisis in the US which may affect the decline in value of such investments, BT has, accordingly, made a provisioning for investment impairment in the amount of 276 million Baht. ** Calculated from BT’s shareholders’ equity divided by the number of BT’s total issued shares, deducted with the number of shares held by BT and/or subsidiaries.
Overview of the past operating performance Main income of BT and subsidiaries consisted of 2 parts, i.e. interest and dividend income, which accounted for more than 80% of total income, and non-interest income. During the year 2005 – 2006, interest and dividend income of BT and subsidiaries stood at 8,839 million Baht and 13,796 million Baht, respectively, resulting in a growth of 56% from year 2005 to 2006. Majority of non-interest income was derived from fees and charges, e.g. acceptances, aval and guarantees. BT and subsidiaries’ non-interest income for the year 2005 – 2006 amounted to 1,581 million Baht and 2,014 million Baht, respectively. For the first half of 2007, interest and dividend income of BT and subsidiaries was 7,524 million Baht, which accounted for 83% of total revenues. The main reason of increase in interest and dividend income was BT’s expansion of loan extension, the increase in retail banking customers in particular, and incremental transactions between BT and other banks and in money market. Non-interest income of BT stood at 1,576 million Baht, accounting for 17% of total revenues. Majority of non-interest income was derived from gain from investment and fees and charges. The increase in non-interest income was mainly due to gain from sale of investment. The expansion of loans, investment in debt instrument, hire purchase and financial lease agreements as well as various service provisions increased in year 2006. As a result, BT and subsidiaries incurred profit from normal operation in the amount of 1,206 million Baht (before losses from non-compensated yield maintenance income of 1,691 million Baht, losses from Covered Asset Pool (“CAP”) Agreement settlement of 2,038 million Baht and provisioning transaction pursuant to the modified criteria stipulated by the BOT in December 20067 of 1,900 million Baht), or basic earnings per share of 0.90 Baht compared with the operating performance for the year 2005 which earned a net profit of 611 million Baht or basic earnings per share of 0.48 Baht. However, in year 2006, BT and subsidiaries incurred net losses of 4,423 million Baht due to realization of losses from non-compensated yield maintenance income of 1,691 million Baht
7
In December 2006, BT revised its guidelines on determining allowance for doubtful accounts by applying the value of collateral to be deducted against the loan balance when setting provisions for non-performing loans in accordance with the guideline under the Notification No. 1974/2549 and No. 1979/2549. Under the new guidelines, BT has to make provision at a rate of 100% of the debt balance remaining after deducting the present value of expected future cash flows from debt collection or from collateral disposal, based on the use of the stipulated discount rate and the time needed to dispose of collateral in accordance with the BOT’s guideline.
21
Translation arisen from yield maintenance income on CAP loans transferred to Thai Asset Management Corporation (“TAMC”). As at the date BT was informed by the FIDF, the balance of yield maintenance income receivable stood at 8,675 million Baht while the amount of yield maintenance income received from the FIDF was equal to 6,984 million Baht which was in accordance with the principles approved by the Cabinet while the non-compensated amount of 1,691 million Baht occurred because the principles approved by the Cabinet for determining yield maintenance income differed from the original principles of the agreement. BT, therefore, recognized such difference as loss in the income statements for the year 2006. Apart from losses from non-compensated yield maintenance income, BT also realized losses from CAP Agreement settlement in the amount of 2,038 million Baht which arose from the compensation of losses incurred from management of non-performing assets under the CAP agreement from the FIDF totaling 92,051 million Baht. The FIDF made partial payment of 80,895 million Baht of such loss compensation in January and February 2006, leaving a balance of 11,156 million Baht. As at 25 April 2007, the FIDF has completely made a payment 11,156 million Baht to BT. For the 6 months period ended 30 June 2007, BT incurred profit before extraordinary items in the amount of 1,642 million Baht, which was due to the increase in interest and dividend income as a result of the expansion of loans and investment. The increase in non-interest income was also attributable to a reversal of provisioning for tax, properties foreclosed, CAP, excess accrued expenses and fees from management of non-performing assets under the CAP agreement as these transactions were finalized and therefore the provisioning is no longer required. However, BT has made 2 provisioning transactions in the amount of 1,640 million Baht as follows: 1) As at 30 June 2007, President Agri Trading Group, a large rice exporter of Thailand, had total debt outstanding of 1,760 million Baht, consisting of cash credit of 1,388 million Baht and non-cash credit (L/G) of 372 million Baht. Such debtor failed to repay since June 2007 and BT is under debt collection process. To protect the further risk of loss which may incur from nonrepayment, BT has set aside provision for this group of debtors at 100% of net cash loan balances, after the expected cash flows from collateral disposal, in the amount of 1,364 million Baht. 2) As at 30 June 2007, BT had foreign currency denominated debt investments which have been classified as the held-to-maturity investments totaling approximately 49,652 million Baht, comprising 38,255 million Baht of structure notes and 11,397 million Baht of CDO’s. Due to the possibility of effect of subprime mortgage crisis in the US on CDO’s investment value, BT made a provision in the amount of USD 8 million or approximately 276 million Baht, accounting for 2.42% of investment value in CDO’s. In calculating the amount of such provisioning, BT adopted principle and guideline of Basel II, based on Advanced Internal Rating-Based Approach (AIRB) as well as the guideline of Dynamic Provisioning. As a result of such provision, BT’s net profit stood at 3 million Baht while net profit of BT and subsidiaries stood at 44 million Baht.
22
Translation
Return on Equity BT did not make any dividend payment to the shareholders for the year 2006 because BT and subsidiaries still had retained deficits in the amount of 8,524 million Baht. Although BT earned profit from normal operation in the first 6 months of 2007, it needed to make additional provision of 1,640 million Baht. BT and subsidiaries, therefore, still had retained deficits as at 30 June 2007 in the amount of 8,487 million Baht. However, the return on equity of BT increased from (68.85) % in 2006 to 1.47%. Financial Status Total assets of BT and subsidiaries as at 30 June 2007 increased by 3% from 217,796 million Baht as at the end of year 2006 to 223,956 million Baht. Such an increase resulted from an increment of short-term investments under held for trading securities and available-for-sales securities classification, the incremental investment in government and state enterprises securities in particular. BT’s loans were mainly extended to manufacturing and commerce industry, followed by public utility and services, real estate development and construction and personal loans. BT continued to adjust the proportion of lending extension to spread towards various businesses without clustering within any particular business. It also distributed the loans to corporate, medium, small and retail customers while the focus remained with the customers in manufacturing industry of key economic sectors. As at 30 June 2007, net loans of BT and subsidiaries declined from 96,073 million Baht at the end of year 2006 to 94,930 million Baht as a result of loan provisioning for President Agri Trading Group. Total liabilities under the consolidated financial statements as at 30 June 2007 increased by 1% from 213,512 million Baht as at 31 December 2006 to 216,209 million Baht. Such an increase mainly resulted from the increase in borrowings due to BT’s issuance of subordinated debentures and notes at the beginning of year 2007. Shareholders’ equity under the consolidated financial statements as at 30 June 2007 increased by 81% from 4,284 million Baht from the end of year 2006 to 7,747 million Baht. Such an increase was mainly due to BT’s issuance of increased shares to Newbridge and co-investors in the amount of 3,050 million Baht and the decrease in retained deficits of 37 million Baht. Non-Performing Loans Non-performing loans of BT and subsidiaries stood at 8,178 million Baht and 11,484 million Baht as at the end of year 2006 and the end of the 2nd quarter of 2007, respectively. As at the end of year 2006 and the end of the 2nd quarter of 2007, non-performing loans of BT under separate financial statements amounted to 3,913 million Baht and 7,227 million Baht, respectively. As at 30 June 2007, the proportion of BT and subsidiaries’ non-performing loans increased from 8% as at the end of year 2006 to 11% of loans. Non-performing loans of BT as at 30 June 2007 increased from 4% of loan as at the end of year 2006 to 7% of loans. Total Capital Adequacy Ratio As at 31 December 2006, BT’s total capital adequacy ratio was equal to 5.95%. Such ratio was less than the level required by law as BT needed to recognize into the retained deficits as at the end of 2006 losses incurred from its receipt of yield
23
Translation maintenance income according to the CAP Agreement in the amount less than the amount previously recorded by 1,691 million Baht, losses from the CAP Agreement settlement with the FIDF of 2,213 million Baht, a significant increase in the allowance for doubtful debts mainly due to the modified criteria for loan loss provisioning stipulated by the BOT in December 2006 whereas at the end of 2006 BT had sufficiently increased its provisioning for sub-standard debts at that time, and recognition of the Warrants buyback transaction from the FIDF of 1,146 million Baht. However, on 25 April 2007, BT obtained proceeds from capital increase in the amount of 3,050 million Baht from the Group of New Investors. As a result, its total capital adequacy ratio was in compliance with the level required by law. As at 30 June 2007, BT’s total capital adequacy ratio stood at 9.17%. Financial Institutions Development Fund The FIDF was established on 27 November 1985 through the enactment of an Emergency Decree regulating the Affairs of the Bank of Thailand. The objective of the FIDF is to implement financial support measures for rehabilitation and development of the financial institutions to maintain stability in the system, especially upon the emergence of severe crisis in the financial institution system under policy of the BOT and the government. It also intends to provide damage insurance and financial assistance as deemed appropriate to financial institution depositors as a result of severe crisis incurred to the financial institutions, to manage debts and assets, to issue the FIDF bond, to supervise the administration concerning management policy on assets and financial institutions in which the FIDF is a shareholder, to pursue debt collection, to enforce debt repayment and collateral owed to the FIDF by external persons as well as studying and preparing for the establishment of the Deposit Insurance Agency. The FIDF is both a part of and a separated juristic entity from the BOT. Management of the FIDF is considered one of the BOT’s sectors. Fund Management Department carries on the operations under the framework of the Fund Management Committee. The FIDF keeps its own accounting records and budget. The Office of the Auditor General audits the FIDF and reports the audit result to the Finance Minister and informs the BOT. The FIDF is managed by the Fund Management Committee, comprising the Governor of BOT as Chairman, the Permanent Secretary of Finance Ministry as Deputy Chairman, and at least 5 but not more than 9 other committee members appointed by the Finance Minister. Recently, there are 9 committee members comprising 4 BOT representatives, 3 Ministry of Finance representatives, 1 from the Office of the Attorney General and 1 from the Office of the Council of State. The Assistant Governor of Fund Management & Corporate Debt Restructuring Group of the BOT acts as secretary of the FIDF's committee and manager of the FIDF by position. -
Fund Management Committee
Name 1. Mrs. Tarisa 2. Mr. Suparut
Watanagase Kawatkul
3.
Vithespongse
Mr. Sun
Present Position Governor, BOT Permanent Secretary, Ministry of Finance Deputy Director, Public Debt
Position in the Committee Chairman Deputy Chairman Committee member
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Translation Name 4. 5.
Lt. Nophadol Mr. Prasarn
Bhandhugravi Huttagum
6. 7. 8.
Mr. Bandid Mr. Sorasit Mr. Phairoj
Nijathaworn Soontornkes Hengsakul
9.
Mrs. Sukanya
Chantrapannik
Present Position Management Office Deputy Director, Fiscal Policy Office Senior Public Prosecutor, Office of the Attorney General Deputy Governor, BOT Senior Director, BOT Assistant Governor, BOT
Director of the Bureau of Financial System Policy, Fiscal Policy Office Term of the Committee member lasts for 3 years, effective from 19 February 2007.
-
Position in the Committee Committee member Committee member Committee member Committee member Committee member, Secretary Assistant Secretary
Financial Statements As at 30 September (Unit: Million Baht) Assets
Current asset Deposits with the BOT Deposits with commercial banks Advance payment Other current assets Total current assets Investment in associated companies Long-term investment Claims on banks & financial institutions due to financial assistance program Notes receivable Properties foreclosed – net Premises and equipment – net Total assets Liabilities and Capital Funds Current liabilities Advance from the BOT Accrued expenses Accounts payable – financial institutions Other current liabilities Total current liabilities Bonds sold with Repurchase Agreement FIDF bonds guaranteed by the Ministry of Finance Liabilities under Note Exchange Program Total liabilities Capital funds Contributions from financial institutions Contributions from the BOT Contributions from the government Payment under Loan Management Agreement from BT Surplus (deficit) in investment value Retained earnings (deficits) Profit (loss) Total capital funds Total liabilities and capital funds
2004
2005
2006
465.64 2.15 17,180.19 288.18 17,936.16 93,724.62 8,896.11
282.09 0.83 0.29 181.21 464.42 87,138.00 7,098.55
367.49 5.41 15,277.85 112.8 15,763.55 91,934.45 6,741.85
125,742.92 22,000.00 3,446.19 6.34 271,752.34
168,432.46 31,205.87 2,270.24 6.14 296,615.68
187,329.43 8,807.73 1,760.55 4.19 312,341.75
12.89 89,695.66 3,023.34 2,026.83 94,758.72 264,086.00 40,000.00 68.94 398,913.66
10.92 100,362.01 3,023.34 1,017.69 104,413.96 292,135.00 40,000.00 62.56 436,611.52
10.75 19,539.94 930.58 20,481.27 252,988.00 45.9 273,515.17
171,690.91 3,900.00 36,680.66 1,610.88 (75.13) (356,992.39) 16,023.75 (127,161.32) 271,752.34
194,906.33 3,900.00 17,844.93 1,616.08 (65.82) (340,968.63) (17,228.73) (139,995.84) 296,615.68
218,712.56 3,900.00 174,249.17 1,873.58 (11.44) (358,197.36) (1,699.94) (38,826.57) 312,341.75
Source: www.bot.or.th
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Translation
Newbridge Sukhothai Netherlands B.V.8 Newbridge was established in the Netherlands to operate in (1) financial, management, advisory and other service provisions to other companies and juristic persons (2) various investment structures (3) the acquisition and divestment of rights in intellectual and commercial property (4) the provision of guarantee against the obligation of other companies or juristic persons, whether being related companies or the companies or juristic persons of the third party, and (5) other businesses related to the above business operation. Newbridge’s registered and paid-up capital stood at €18,000, divided into 180 shares at par value of €100 per share, 100% of which being held by Coöperatieve Newbridge Sukhothai U.A., a subsidiary whose shares are wholly owned, directly and indirectly, by Newbridge Asia IV, L.P. Newbridge Asia IV, L.P. and TPG Sukhothai, Ltd. (whose shares are wholly owned by Newbridge Asia IV, L.P.) hold 99% and 1% shares, respectively, in Coöperatieve Newbridge Sukhothai U.A. TPG Sukhothai, Ltd. was registered in Cayman Islands. Newbridge Asia IV, L.P. has a total commitment of USD 1,550 million. However, the proportion of called commitment cannot be disclosed due to a restriction bound by the confidentiality agreement. Newbridge Asia IV, L.P., or commonly known under commercial name for its investment in Asia region as TPG Newbridge, is a leading global investment firm with headquarter located in the US. Over USD 30,000 million of total capital is under its management to be used in the investment through a variety of vehicles worldwide. TPG Newbridge’s investment philosophy has been to create value to the business through deep industry experiences in a broad range of businesses of a group of experts in which TPG Newbridge possesses a large global network. These experts will work closely with the management team in such business to make quick and efficient investment decisions. TPG Newbridge’s investment would help transfer knowledge and technology from TPG Newbridge’s experts to such business. In this investment in BT, TPG Newbridge will bring in experts with in-depth knowledge and experience in world class banking management to participate in the management. These experts have long been in financial and banking industry, and used to serve as high-level executives in the leading banks/ financial institutions. Examples of TPG Newbridge’s investment in financial and banking business in Asia region are as follows: -
Korea First Bank is the 8th largest bank in South Korea. TPG Newbridge group made an investment in such bank in year 1999 as a 51% shareholder. The remaining 49% shares were held by South Korean government. Shenzhen Development Bank is one of the nationwide banks in China. Taishin Financial Holdings is located in Taiwan. TPG Newbridge group made an investment in such bank in year 2006 with total investment of approximately USD 844 million. Representative from TPG Newbridge group also served as member of the bank’s Board of Directors.
8
Changed its name from Centerpoint Media Investment Netherlands B.V. to Newbridge Sukhothai Netherlands B.V. on 9 May 2007.
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Translation Apart from the financial and banking industry, samples of investment of TPG Newbridge group in other industries are such as: -
Lenovo, China’s largest PC manufacturer and no. 3 globally. Raffles, provider of hotel and resort management services under the Raffles and SwissÔtel brands in more than 40 hotels and resorts worldwide. Burger King, the 2nd largest hamburger franchise globally. Beringer Wine Estates, a major premium wine producer in California, USA. Seagate Technology, a leading global disk drive manufacturer with headquarter in the US.
Newbridge Asia Advisors IV, Inc., with total issued shares of USD 2, is fully authorized as investment manager to manage and operate the investment of Newbridge Asia IV, L.P. through Newbridge Asia GenPar IV, L.P. As a result, management and operation decision of any investment of Newbridge is at discretion of the Board of Directors of Newbridge Asia Advisors IV, Inc., which comprises Mr. David Bonderman and Mr. James G. Coulter. Due to a restriction bound by the confidentiality agreement, the information regarding shareholders of Newbridge Asia Advisors IV, Inc. cannot be disclosed. The Board of Directors No. 1. 2. 3. 4. 5. 6.
Name ATC Management B.V.* Mr. Arnout Stal Mr. Ronald Arendsen Mr. David Bonderman Mr. James Coulter Mr. John Edward Viola
Position Director Director Director Director Director Director
* The Board of Directors of ATC Management B.V. consists of Mr. Johannes Hendricus Scholts, Mr. Guido Franciscus Xaverius Maria Nieuwenhuizen, Mr. Johan Lont and Mr. Andreas Gerardus Maria Nagelmaker.
3.
Reasonableness and Benefit of the Connected Transaction to BT
3.1 Objective of the Transaction The objective of the allotment of the remaining shares in which some of the existing shareholders of BT may not exercise their rights in the rights offering through private placement offering to specific investors, which may include the FIDF, Newbridge, Blum, MSOF and/or some of the existing shareholders which are not connected persons is to ensure that the amount of proceeds of approximately 7.68 billion Baht can be raised within planned timeframe to increase the registered capital from 8,343 million Baht to 25,030 million Baht within December 2007.
27
Translation
3.2 Necessity of the Transaction Whereas the Extraordinary General Meeting of the Shareholders no. 1/2007, held on 30 May 2007, approved the allocation of 2,224.90 million of newly issued shares to the existing shareholders (Rights Offering) at the ratio of 1 existing share to 1 new share at the price of 3.46 Baht per share, and to some existing shareholders in a private placement offering at the price of 3.48 Baht per share. Subsequently, BT did not offer the shares for sale according to the approval as prior to registering a capital increase of 2,224.90 million shares, it was obliged to register the capital reduction according to the resolution from the Annual General Meeting of the Shareholders on 24 April 2007. In this regard, under the Public Limited Companies Act, BT is required to submit any resolution regarding capital reduction to all creditors of the Company and to allow said creditors to object to the capital reduction within 2 months from the date of receipt of the said resolution. The last date for sending notice to the creditors was 8 May 2007. Therefore, the last date for submitting objections was 9 July 2007. After such expiry date, the Company had registered the capital reduction via par value reduction on 10 July 2007, registered the capital reduction via cancellation of all preferred shares issued to support the Warrants on 12 July 2007, and registered the capital increase on 13 July 2007. After the completion of the aforementioned process, the market situation turned unfavorable to the offering of shares at the price approved by the shareholders’ meeting. BT, therefore, deemed that if the offering was taken during that period, such capital increase may affect the funding to be used for its business operation as proposed for approval from the shareholders’ meeting. Accordingly, the Board of Directors’ meeting of BT resolved to propose to the shareholders’ meeting for approval on the cancellation of the resolutions relating to the above capital increase and on the allocation and offering of 4,449.80 million of newly issued shares to the existing shareholders in proportion to each shareholding (Rights Offering) at the ratio of 1 existing share to 2 new shares at the offering price of 1.73 Baht per share (such an offering price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price of the rights offering and not be lower than 1.00 Baht per share). The remaining shares after the rights offering will be offered to Private Placement Investors. It is necessary for BT to allot the remaining shares in which some of the existing shareholders do not exercise their subscription rights through private placement offering to specific investors, which may include the FIDF, Newbridge, Blum, MSOF and/or some existing shareholders which are not connected persons, to ensure that BT will be able to obtain proceeds from fund raising in the amount as planned within the determined timeframe in order that level of BT’s Tier I capital and total capital will be in compliance with the required criteria and be able to support its business expansion. In spite of the inclusion of capital increase to the Group of New Investors on 25 April 2007, as at 30 June 2007, BT’s Tier I capital to risk assets ratio equals 6.18% while total capital adequacy ratio equals 9.17% which are modestly higher than the required criteria of 4.5%
28
Translation and 8.5%, respectively. As such, BT still needs to obtain additional capital in order that the business expansion can be proceeded according to the plan. 3.3 Benefit and Weakness of the Entering into the Transaction to BT 3.3.1
Benefit to BT from the Entering into the Transaction BT’s election to allot the remaining shares in which some of the existing shareholders do not exercise their subscription rights through private placement offering to specific investors which may include the FIDF, Newbridge, Blum, MSOF and/or some of the existing shareholders who are not connected persons, whereas the FIDF and Newbridge are connected persons, instead of canceling such remaining shares or continuing to allot the remaining shares to the existing shareholders will provide benefits to BT as follows: (1) Help ensure that proceeds to be obtained by BT from fund raising will be in the amount as planned Should there be a large amount of shares remaining from unsubscription of some of the existing shareholders and BT does not use such shares for further allotment, the amount of proceeds to be obtained from this capital increase will be much lower than the expected amount which may, accordingly, affect BT’s level of Tier I capital and business expansion plan to enable BT to be competitive with other domestic and overseas bank as planned.
3.3.2
Weakness to BT from the Entering into the Transaction (1) Weakness in term of the earnings per share and rate of return on equity In the offering of increased capital to the existing shareholders, if all of the existing shareholders exercise their subscription rights according to their entitlement, or BT can allot all of the remaining shares not subscribed by some of the existing shareholders through private placement offering, the earnings per share and rate of return on equity will decline immediately. BT’s earning per share will decrease from 0.0199 Baht per share9 to 0.0066 Baht per share10 and the rate of return on equity will decline from 1.47%11 to 0.90%12. However, should some shareholders not exercise their subscription rights until there are a number of shares remaining and BT first proceed to decrease such capital before further applying for capital increase afterwards when BT needs
9
Calculated from net profit for the 6 months period ended 30 June 2007 divided by the number of shares of 2,224.90 million shares. 10 Calculated from net profit for the 6 months period ended 30 June 2007 divided by the number of shares of 6,674.70 million shares. 11 Calculated from the annualized estimation, based on net profit for the 6 months period ended 30 June 2007, divided by average equity as at 31 December 2006 and 30 June 2007. 12 Calculated from the annualized estimation, based on net profit for the 6 months period ended 30 June 2007, divided by average equity as at 31 December 2006 and 30 June 2007, as adjusted by the capital increase of 4,449.80 million shares at the price of 1.73 Baht per share.
29
Translation additional funding, i.e. gradual increase of BT’s capital according to its business expansion plan, the effect to the earnings per share and rate of return on equity will gradually incur. However, gradual increase of capital will incur additional cost and need to pass various procedures which may take time to apply for an approval and, as a result, may be too late for BT’s lending business expansion. (2) Weakness in term of the controlling power in the future In the offering of increased shares to the existing shareholders, if some shareholders do not exercise their subscription rights until there are a number of shares remaining and such shares are allotted to the FIDF and Newbridge, the shareholding proportion of the FIDF and Newbridge will increase from 32.88% and 24.99% to 42.43% and 34.54%, respectively (under the assumption that all other shareholders, apart from the Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). As a result, the FIDF and the Group of New Investors, comprising Newbridge, Blum and MSOF, will become the two largest groups of shareholders of BT with the combined shareholding percentage of 84.85%. As such, it is highly likely that the FIDF and the Group of New Investors together will have a controlling power in critical agenda which require three fourth voting approval from the shareholders’ meeting. However, the two groups of major shareholders will have equal percentage of shareholding and, therefore, will be able to balance the power of each other in the shareholders’ meeting, thereby being beneficial to the minority shareholders. 3.4 Benefit and Weakness of the Entering into the Transaction with the FIDF and Newbridge Compared with the Entering into the Transaction with External Person 3.4.1
Benefit from the Assignment of Rights to the FIDF and Newbridge to Subscribe for the Remaining Shares Not Subscribed by Some Shareholders (1) BT will continue to gain support from the FIDF and Newbridge BT’s offering of the remaining increased shares not subscribed by the existing shareholders to the FIDF and Newbridge will maintain the FIDF and Newbridge’s status as the major shareholders of BT which will help BT continue to gain full support from the FIDF and Newbridge in case where the Company may need financial support for business expansion in the future while such support from the FIDF and Newbridge will not have an impact on the operating approach of BT. Additionally, Newbridge’s experience and expertise in a variety of investment and financial services business both in Asia and other regions around the world should allow them to assign resources to jointly plan BT’s strategies and operation plan which would help enhance BT’s competitive edge in the future.
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Translation (2) Mitigate the risk of shares offering not fully subscribed If there are remaining shares not subscribed by some of the existing shareholders, the allotment of such remaining shares to the FIDF and Newbridge is considered the allotment to trustworthy investors with adequate capability to subscribe for such shares of BT. Therefore, BT can be confident that proceeds to be obtained from this capital increase will be in the amount as planned. (3) Balance of the power between two groups of major shareholders The offering of the remaining increased shares not subscribed by the existing shareholders to the FIDF in the equal proportion to Newbridge will maintain even shareholdings between the FIDF and the Group of New Investors which will continue to help balancing the power between two groups of the major shareholders. After capital increase, the maximum shareholding percentage of the FIDF and Newbridge will increase from 32.88% and 24.99%, respectively, to 42.43% and 34.54%, respectively (under the assumption that all other shareholders, apart from the Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). 3.4.2
Weakness from the Assignment of Rights to the FIDF and Newbridge to Subscribe for the Remaining Shares Not Subscribed by Some Shareholders (1) Weakness in term of the shareholding proportion of other existing shareholders not allotted with the shares The existing shareholders who wish to subscribe for the shares in excess of their rights according to their respective shareholding percentage but are not allotted with such excess shares as BT allots the said shares to some investors through private placement offering, which may include the FIDF and Newbridge, will be affected in term of the shareholding proportion which does not increase in the same proportion as the FIDF and Newbridge’s. That is, the shareholding percentage of other existing shareholders not allotted with the shares in excess of their rights will be the same as that before this capital increase while the FIDF and Newbridge’s shareholding percentage in BT will increase according to the amount of excess shares allotted to the FIDF and Newbridge. (2) Weakness in term of an acquisition cost of securities of other existing shareholders not allotted with the shares In case BT allots the remaining shares not subscribed by some shareholders to the Private Placement Investors at the price of 1.75 Baht per share, comparing such price with the market price of BT’s shares during the period before the BOD resolved that it deemed appropriate to propose to the shareholders for approval of the new capital increase, this price is less than BT’s weighted
31
Translation average closing price during the past 7 business days from 2 – 10 October 2007 (which equals 3.107 Baht per share) by 1.36 Baht per share, or 43.68% lower than the market price during such period. Therefore, considering the period of share offering in which the share market price may not differ from current level of share price, the offering price may continue to be lower than the share market price during such period. As a result, the cost of securities acquisition of some shareholders who wish to subscribe for the shares in excess of their rights according to their respective shareholding percentage but do not obtain the rights to subscribe for the excess shares at the price below the market and need to acquire BT’s shares in the market by themselves may be higher than that of the Private Placement Investors allotted with the excess shares which may include the FIDF and Newbridge. However, upon the offering of a large number of shares to the existing shareholders according to their respective shareholding percentage (Rights Offering) at the price lower than the market price, normally the market price should adjust downward according to the lower offering price. As a result, the market price as at the offering date of the increased shares should not significantly differ from the offering price. 3.4.3
Weakness from the Assignment of Rights to Newbridge to Subscribe for the Remaining Shares Not Subscribed by Some Shareholders (1) The risk that there may remain unsubscribed shares from this private placement offering if Newbridge is not granted a waiver from the Ministry of Finance to hold more than 24.99% of BT’s shares BT is in the process of applying for the waiver from the Minister of Finance through the BOT to allow Newbridge to hold more than 24.99% of BT’s shares. There is a possibility that Newbridge may not obtain such a waiver approval from the Ministry of Finance to hold more than 24.99% of BT’s shares. Therefore, Newbridge will not be able to subscribe for the remaining shares not subscribed by some shareholders according to the allotment approval from BT’s BOD. As such, the proceeds to be obtained by BT from fund raising will not be in the amount as planned, unless BT will further offer such remaining shares to other investors.
4.
Fairness of the Price and Condition of the Transaction
Reasonableness of the Price
The Financial Advisor has adopted the following share valuation approaches to consider the appropriateness of the offering price: 4.1 4.2 4.3 4.4 4.5
Book Value Approach Adjusted Book Value Approach Market Value Approach Market Comparable Approach Dividend Discount Model Approach (DDM)
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Translation
4.1 Book Value Approach The book value approach presents the value of BT as shown in the account at a specific point of time. In this case, the valuation is based on book value of BT from the financial statements as at 30 September 2007, unreviewed by the auditor. Calculation of BT’s book value can be illustrated below:
Issued and paid-up capital Ordinary share discount Revaluation surplus on assets Revaluation deficit on investments Retained earnings (deficits) Appropriated – legal reserve Retained deficits BT’s ordinary shares held by subsidiaries Equity attributable to BT’s shareholders No. of total shares (million shares) 3 Book value per share (Baht per share)
Amount (Million Baht) As at 30 Jun 07 1 As at 30 Sep 07 2 22,249.00 8,343.38 (5,387.96) 777.19 772.44 (213.93) (310.51) 6.05 (8,486.98) (1,261.47) 7,681.90 2,100.31 3.66
6.05 (2,795.40) (1,261.47) 4,754.49 2,100.31 2.26
1
Audited by the auditor Unreviewed by the auditor 3 The number of total issued and paid-up ordinary shares of BT of 2,224.90 million shares deducted by the number of total ordinary shares of BT held by subsidiaries of 124.59 million shares. Note: - In July 2007, BT registered the capital reduction with the Ministry of Commerce via par value reduction from 10 Baht per share to 3.75 Baht per share. Therefore, the registered capital decreased from 61,402.50 million Baht to 8,343.38 million Baht (consisting of paid-up ordinary shares of 2,224.90 million shares at the par value of 3.75 Baht per share). Such capital reduction resulted in an elimination of ordinary share discount and retained deficits. - According to BT’s operating results for the 3-month period from July – September 2007, its net income before extraordinary items stood at 430 million Baht and net loss at 3,054 million Baht, mainly as a result of the additional provisions of 3,484 million Baht, which comprised: 1) Allowance for impairment of investment in overseas debt instrument of CDO’s in the amount of 2,323 million Baht 2) Allowance for doubtful debts in the amount of 1,161 million Baht 2
Based on book value approach, value of BT is 2.26 Baht per share based on the value calculated from the financial statement as at 30 September 2007, prior to a review by the auditor. Such information was obtained from BT’s latest financial statements disclosed to the SET, taken into account the operating results in the 3rd quarter of 2007 which had material changes, including the effects of revaluation of investment in CDO’s, additional allowance for doubtful debts and par value reduction to eliminate retained deficits and share discount.
33
Translation 4.2 Adjusted Book Value Approach BT’s book value as shown in the financial statements as at 30 September 2007 was used in the calculation under adjusted book value approach. This is because such information was obtained from BT’s latest financial statements submitted to the SET, taken into account the operating results in the 3rd quarter of 2007 which had material changes, including the effects of revaluation of investment in CDO’s, additional allowance for doubtful debts and par value reduction to eliminate retained deficits and share discount. The book value was then adjusted with commitments and contingent liabilities, divided by the number of total issued and paid-up shares of BT. The Financial Advisor has considered major items in BT’s financial statements, e.g. loans and accrued interest receivables, provisioning for doubtful debts, investment, deposits, etc. The Financial Advisor has adjusted the contingent liabilities which may arise from litigation against BT, as defendant. At present the litigation has not yet been finalized and is currently in the process of appealing the decisions. The Financial Advisor views that loss from indemnification may incur to BT as the Civil Court had passed a verdict in favor of the plaintiffs with sums claimed against BT, as the direct defendant and the co-defendant with others, of 84 million Baht and 48 million Baht, respectively. Equity attributable to BT’s shareholders Adjusted by Estimated loss from contingent liabilities which may arise from the litigation filed against BT - as the direct defendant - as the co-defendant with others Total shareholders’ equity after adjustment Number of BT’s total shares ^ (million shares) Adjusted book value per share (Baht per share)
Amount (Million Baht) 4,754.49
(84.32) (47.98) 4,622.19 2,100.31 2.20
^ The number of total issued and paid-up ordinary shares of BT of 2,224.90 million shares deducted by the number of BT’s total ordinary shares held by subsidiaries of 124.59 million shares. Note : The above adjustment does not include any additional effect which may arise from the possibility of a change in the BOT’s regulation relating to investments in structured notes after 30 September 2007. Normally, the transaction to be used in adjusting the book value should be able to be assessed with reasonable certainty of the expected amount to be incurred in order to adjust with the business value according to the operating results at a specific of time. As there remains uncertainty of the change in the above regulation, BT could not estimate the effect with reasonable certainty at present.
Based on the adjusted book value approach, the value of BT equals 2.20 Baht per share. 4.3 Market Value Approach Market value approach is calculated based on the weighted average historical price of BT’s ordinary shares traded on the SET. In order that value calculated from market value approach reflects the share prices close to the period of the offering price determination, the Financial Advisor uses the weighted average price of BT’s shares during the period of 7, 15 and 30 business days prior to the date the Board of Directors approved the offering of the remaining shares after rights offering to the Private
34
Translation Placement Investors on 11 October 2007. Value of the shares deriving from the market value approach can be summarized as follows:
Weighted average price (Baht per share) Average trading volume per day (thousand shares)
7 Business Days (2 Oct 07 – 10 Oct 07) 3.12
15 Business Days (20 Sep 07 – 10 Oct 07) 3.08
1,721.87
1,708.11
30 Business Days (30 Aug 07 – 10 Oct 07) 3.03 1,211.50
Source: SETSMART Note: Should the weighted average close price during the period of 7, 15 and 30 business days be used in the calculation, share price would be equal to 3.11 Baht per share, 3.07 Baht per share and 3.02 Baht per share, respectively.
Based on market value approach, the value of BT’s share ranges from 3.03 – 3.12 Baht per share. 4.4 Market Comparable Approach Market comparable approach appraises BT’s share value by comparing the financial ratios of the banks with total assets as at 30 June 2007 of greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET with the ratios of BT. Approaches used in evaluating share value under market comparable approach are price to book value approach and price to earning ratio approach. 4.4.1
Price to Book Value Approach (P/BV) Price to book value approach multiplies the book value per share of BT as at 30 June 2007 by the average P/BV ratio of the banks with total assets as at 30 June 2007 of greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET. A summary of the information regarding the comparison of the size of commercial banks listed on the SET is provided below:
No.
Bank
Total
Total
Loans and Accrued
Total
Assets
Liabilities
Interest Receivables (Net)
Deposits
(Million Baht)
(Million Baht)
(Million Baht)
(Million Baht)
1
Bangkok Bank plc. ("BBL")
1,559,859
1,400,162
919,833
1,287,662
2
Krung Thai Bank plc. ("KTB")
1,259,711
1,165,962
884,776
1,030,527
3
Siam Commercial Bank plc. ("SCB")
1,093,184
990,517
737,940
787,505
4
Kasikornbank plc. ("KBANK")
962,632
867,857
671,823
764,148
5
Bank of Ayudhya plc. ("BAY")
646,770
582,345
423,114
526,202
6
TMB Bank plc. ("TMB")
646,362
615,501
478,016
492,418
7
Siam City Bank plc. ("SCIB")
423,584
386,186
229,458
358,138
8
Thanachart Bank plc. ("TBANK") *
279,940
264,475
208,630
204,937
9
BankThai plc. ("BT")
223,956
216,209
94,930
166,000
10
Standard Chartered Bank plc. ("SCBT") **
215,823
196,005
79,746
83,251
11
Tisco Bank plc. ("TISCO")
104,047
92,341
79,153
43,596
12
Kiatnakin Bank plc. ("KK")
78,524
60,631
53,218
36,813
13
ACL Bank plc. ("ACL")
50,743
38,606
29,842
35,181
Note: Information as at 30 June 2007
35
Translation * TBANK is not used in the comparison for the calculation of the average for the assessment of BT’s share value as its free float was merely 0.64%13 and the average trading volume during the 30 business day period from 30 August 2007 – 10 October 2007 was only approximately 14,790 shares per day. Moreover, loan structure of TBANK puts a focus on the hire purchase loan with the proportion exceeding 50% of total loan portfolios. Such a structure differs from the loan structure of commercial banks chosen by the Financial Advisor for comparison. ** SCBT is not used in the comparison for the calculation of the average for the assessment of BT’s share value as there has been no trading transaction of its shares on the SET for more than 5 years. At present, SCBT is also in the process of delisting its shares from the SET. Therefore no price of SCBT’s securities is available to be used for comparison.
Based on the above information, the banks used in the comparison are as follows: 1. 2. 3. 4. 5.
Bank of Ayudhya Public Company Limited (“BAY”) Kasikornbank Public Company Limited (“KBANK”) Siam City Bank Public Company Limited (“SCIB”) TMB Bank Public Company Limited (“TMB”) Tisco Bank Public Company Limited ("TISCO")
P/BV of the banks used as comparison is calculated from the closing price of the shares of each bank as at 10 October 2007, which was the date prior to the date the Board of Directors approved the offering of the remaining ordinary shares after the rights offering to the Private Placement Investors, divided by book value per share of each bank as at 30 June 2007. Details are as follows: Bank
BAY KBANK SCIB TMB TISCO Average BT
Closing Price as at 10 Oct 07 (Baht) 28.00 86.00 18.10 2.02 31.50
Trading Value as at 10 Oct 07 (Million Baht) 495.90 359.63 98.09 100.48 52.92
3.10
Book Value ^ as at 30 Jun 07 (Baht Per Share) 12.95 39.69 17.70 1.64 16.11
2.28
3.66
P/BV (Times) 2.16 2.17 1.02 1.23 1.96 1.71 0.85
Source: SETSMART ^ Book value of each bank as presented in the financial statements of each bank as at 30 June 2007 as audited by the auditors.
Period *
30 business days (30 Aug 07 – 10 Oct 07) 60 business days (17 Jul 07 – 10 Oct 07) 90 business days (5 Jun 07 – 10 Oct 07) 120 business days (19 Apr 07 – 10 Oct 07)
Average P/BV of 5 Banks (Times) 1.62
Shareholders’ Equity as at 30 Jun 07 (Million Baht) 7,681.90
Book Value Per Share (Baht Per Share) 3.66
Share Value (Baht Per Share)
1.63
7,681.90
3.66
5.95
1.64
7,681.90
3.66
5.99
1.58
7,681.90
3.66
5.77
5.94
Source: SETSMART
13
Data as of 9 April 2007
36
Translation * Period used in calculating BT’s share value ranges between 30 – 120 business days as such period should be able to reflect the volatility of market prices and cover both the recent up and down cycles of the price.
Based on price to book value approach, the value of BT’s share ranges from 5.77 – 5.99 Baht per share. 4.4.2
Price to Earning Ratio Approach (P/E) Price to earning ratio approach multiplies earning per share of BT for the 12month period ended 30 June 2007 by the average price to earning per share ratio of the banks with total assets as at 30 June 2007 of greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET used in the comparison. However, as BT’s performance during the last 4 quarters shows negative result, P/E ratio thus cannot be used in the calculation of share value. The Financial Advisor hence is of the opinion that this approach is not appropriate to evaluate the value of BT’s share.
4.5 Dividend Discount Model Approach (DDM) Dividend discount model approach is the calculation of the present value of future dividend cashflow expected to be received by the shareholders from BT’s operation, based on the present and future assumptions. The Financial Advisor opines that dividend discount model approach should be used in calculating value of BT’s ordinary shares for this capital increase because nature of the holders of banks’ stocks are mostly not intended to own the business but rather to be the investors whose expected returns would be in form of dividend and capital gain in the future. Other approaches of valuation from the projection, e.g. discounted cashflow approach, may not suit the nature of general banks’ shareholders as these approaches are normally used for the major shareholders of the firm whose expected returns are from the ownership of the business or from the divestment of the company in the future. The Financial Advisor’s DDM valuation of BT’s value from the financial projections is based on appropriate assumptions prepared by BT. The information adopted in the financial projections, some of which being further revised, is sought from BT’s officers by the Financial Advisor. It had also studied the past financial statements, information and materials from BT. However, in this valuation of BT’s ordinary share, the Financial Advisor bases its valuation on a going concern basis of BT’s operation in the future by taking into account a result of stronger capital base from the offering of increased capital to the Group of New Investors of 731.45 million shares, capital decrease via par value reduction to eliminate share discount and retained deficits, and capital reduction by canceling unsold preferred and common shares of 3,706.80 million shares and 208.55 million shares, respectively. It also assumes that there are no significant changes and that the operation is in accordance with current economic condition with the purpose of determining appropriate share value for this offering of increased capital only. Should there be any significant change in the economic condition as well as other external factors affecting business operation, including significant change in business status, from the aforementioned assumptions, share price evaluated by this approach would also be changed and cannot be used as reference for any other purposes apart from what is stated above. 37
Translation
Key Assumptions Used in the Financial Projections for the Year 2007 – 2011 Sources of assumptions used to prepare the financial projections comprise financial information from BT, current economics data and projected figures and interview with BT’s officers in charge of a preparation of BT’s financial projections. The financial projections have been partially revised by the Financial Advisor as deemed appropriate. •
Loans Due to current intense competition in the industry, both in terms of the interest rate and various promotional campaigns to attract customers, BT plans to increase its lending provision to the SME and retail banking customers in order to increase its customers base. It forecasts that lending portfolio would slightly decrease by 0.80% in year 2007. However, as a result of enlarged capital base from the capital increase, BT should be able to expand its lending portfolio by approximately 13% in year 2008 – 2011. The average lending interest rate is expected to increase slightly in each year. Comparing with that in year 2005, loan portfolio in year 2006 declined by 25% due to the settlement of Covered Asset Pool (CAP) Agreement with the FIDF while the balance of non-CAP loans grew by 13% from year 2005.
•
Investment – net BT expects growth of net investment will grow by 21% in year 2007 comparing with the growth of net investment by 18% in year 2006 as the yield maintenance income from the FIDF was used for additional investment. Net investment as at 30 June 2007 rose by 27% from net investment at the end of year 2006. BT expects net investment in the second half of year 2007 would decline due to subprime crisis and additional allowance for impairment of investment. However, BT expects growth rate of net investment in year 2008 – 2011 of approximately 3 – 4% p.a. according to its investment policy. As at 30 June 2007, BT has investments in overseas debt instrument which are classified as held to maturity of 49,652 million Baht (as aforementioned in Summary of BT’s Financial Status and Operating Performance Re: Overview of the past operating performance Section). However, because of subprime crisis in the US, BT has provided additional allowance for impairment which may be affected by the devaluation of CDO’s in the future in the amount of approximately 2,323 million Baht in the 3rd quarter of year 2007. Moreover, under the possibility of a change in the BOT’s regulation relating to the investment in structured notes, BT has considered to provide additional allowance for impairment of investment in the structured notes equivalent to approximately 2% of total investment in the structured notes in year 2007.
•
Revenue Major revenue of BT consists of revenue from lending, revenue from investment and revenue from interbank and money market.
38
Translation
-
Revenue from lending BT forecasts the revenues from lending would increase according to the plan to expand towards the SME and retail banking customer base. It forecasts that revenues from lending in year 2007 would increase by 1.32% from year 2006. Revenues from lending in the first 6 months of year 2007 accounted for 51% of total revenues from lending expected to earn in year 2007. However, as a result of the enlarged capital base from capital increase, BT should be able to increase its lending extension. Accordingly, revenues from lending should grow by 15 – 20% in year 2008 – 2011. BT forecasts the rates of return from lending should be around 7 – 8%.
-
Revenue from investment In year 2007, BT expects revenues from investment should increase by 3% from year 2006 because of the increase in investment as aforementioned. Revenues from investment in the first 6 months of year 2007 accounted for 49% of total revenues from investment expected to earn in year 2007. In year 2008 – 2011, growth rate is expected to be around 2 – 4% due to the effect from subprime crisis. On a conservative basis, BT estimates the investment return would be reduced to approximately 5% of the average investment.
-
Revenue from interbank and money market BT expects the return from interbank and money market transaction would be relatively stable at 3.3 – 4.0% in year 2007 – 2011 which is relatively similar to that in year 2006 and the first half of year 2007 of 5%.
•
Deposits and interest expenses BT expects the deposits would decline by 5% in year 2007 which is coherent with a decrease in lending as well as the low deposit rate and its relatively small size which lower its competitiveness. BT forecasts its deposits would increase by 8 – 10% in year 2008 – 2011 attributable to the aggressive marketing policy, the expansion of branches to cover and reach a wider range of customer and maintenance of its customer base. Considering the deposit balance as at the end of year 2006, BT’s deposit declined by 7% comparing with that as at the end of year 2005 due to intense competition in the market in term of deposits interest.
•
Provisioning for allowance for doubtful debts BT projects the minimum provisioning rate for doubtful debts would be pursuant to the BOT’s requirement according to class of debts as follows: Normal debts Special-mentioned debts Sub-standard debts Doubtful debts Bad debts
Minimum Provisioning Rate Pursuant to the BOT Criteria 1% 2% 100% 100% 100%
During the year 2006, BT provided allowance for doubtful debts in accordance with the revised guidelines on determining allowance for doubtful accounts of the BOT issued in December 2006. It had made a 100% provision of the debt balance remaining after deducting the present value of expected future cash flows from debt
39
Translation collection or from collateral disposal, based on the use of the stipulated discount rate and the time needed to dispose of collateral, in accordance with the BOT’s guidelines which was already sufficient for lending balance at that time. However, in year 2007, BT has considered additional contingent loss which may be incurred from the default of some accounts receivable with indicative behavior of potential default in the future. BT, therefore, has provided additional allowance for doubtful debts to be sufficient for the loss which may incur to BT in the future. Total allowance for doubtful debts up to the end of the 3rd quarter of year 2007 amounted to 3,144 million Baht. •
Non-performing loans BT will increase its cautiousness in the management of lending extension to maintain the proportion of non-performing loans at the industry level. In year 2006 and 30 June 2007, BT’s proportion of non-performing loans stood at 3.77% and 7.15%, respectively. It expects that non-performing loans will maintain at 5 – 6% in year 2008 – 2009 before declining to approximately 4% thereafter.
•
Administrative expenses, consisting of:
- Personnel expenses: According to its business plan, BT would concentrate on business expansion towards the SME and retail banking customers. Hence, BT needs to increase the number of branches and staff to facilitate the planned business expansion. BT forecasts personnel expenses would increase by 15%, or accounting for 11% of total revenues, in year 2007 and 8 – 10% in year 2008 – 2011, or accounting for 12 – 14% of total revenues. Comparing with those in year 2005, personnel expenses grew by 17% in year 2006. Personnel expenses in year 2006 and the first half of year 2007 accounted for 12% and 9% of total revenues, respectively. Personnel expenses during the 6 months period of year 2007 accounted for 43% of total forecasted personnel expenses in year 2007. -
Premises and branch expansion expenses: BT expects premises and branch expansion expenses would increase by 21% in year 2007 correspondingly to business plan to focus in the expansion towards the SME and retail banking sectors. It is expected that around 25 new branches will be opened in year 2007 and increase in consistent with the growth of lending expansion. Therefore, the growth rate of premises and branch expansion expenses is expected to stand at 57% in year 2008 as the result of substantial branch expansion in year 2007 would have a full impact to such expenses in year 2008. These expenses would then continuously increase by 4 – 11% in year 2009–2011. Comparing with those in year 2005, premises and branch expansion expenses rose by 17% in year 2006. Premises and branch expansion expenses incurred during the first 6 months of year 2007 accounted for 49% of total forecasted expenses for the year 2007.
-
Special business tax is expected to stand at approximately 3.3% of interest and dividend income, which is similar to that in year 2006. BT’s special business tax in the first 6 months of year 2007 was equal to 3% of interest and dividend revenues and 51% of total forecasted expenses for the year 2007.
-
Contributions to the FIDF are expected to stand at 0.4% of deposits balance, which is similar to that in year 2006. BT’s contributions to the FIDF in the first
40
Translation 6 months of year 2007 accounted for 0.2% of deposits balance and 52% of total forecasted contributions for the year 2007. -
•
Other expenses, e.g. marketing expenses, public relations, etc., are expected to increase by around 6 – 12%. This is due to incremental expansion of lending portfolio towards retail banking customers, thereby increasing commission fees relating to the expansion of such loan expansion. BT’s other expenses in the first 6 months of year 2007 accounted for 38% of total forecasted expenses for the year 2007.
Gain (loss) from foreign exchange/ derivatives BT expects gain from foreign exchange/ derivatives would decline in year 2007 as compared with that in year 2006. This is mainly due to loss from hedging against such derivatives as overseas debt instrument in CDO’s which will be recorded in gain (loss) from foreign exchange/ derivatives account as well as the fluctuation in foreign currency market. In the first 6 months of year 2007, BT’s gain (loss) from foreign exchange/ derivatives (excluding loss from hedging against overseas debt instrument) accounted for 50% of expected gain (loss) from foreign exchange/ derivatives in year 2007. BT forecasts that gain (loss) from foreign exchange/ derivatives would increase by 15% in year 2008 – 2011 (excluding loss from hedging against overseas debt instrument).
•
Dividend payment policy BT sets out a policy to make dividend payment of not less than 40% of the annual net profit. BT made the last dividend payment of 0.07 Baht per share to its shareholders in year 2002. In preparing the financial projections, the decrease of registered capital via par value reduction which enabled BT to eliminate its retained deficits from year 2006 financial statements is taken into account. Together with capital increase to the Group of New Investors and policy of lending expansion towards the SME and retail banking customers, BT should earn net profit and be able to pay dividend to its shareholders. Nevertheless, in year 2007 it is expected that BT would make additional provisioning as a result of loss which may be incurred from the investment in overseas debt instrument, resulting in net loss to BT in year 2007, thereby preventing BT from dividend payment. However, the Financial Advisor sets out the assumption that in year 2008 BT would decrease its capital via par value reduction again in order to eliminate the entire retained deficit and share discount incurred in year 2007, thereby enabling BT to pay dividend in year 2008.
•
Issued and paid-up capital According to the financial projections prepared by BT, BT has taken into account the offering of increased ordinary shares via rights offering to the existing shareholders at the proportion of 1 existing share to 2 newly issued shares. After this capital increase to the existing shareholders, BT’s issued and paid-up capital would stand at 25,030 million Baht or 6,675 million shares at par value of 3.75 Baht per share (under the assumption that the entire shares offered to the existing shareholders can be sold, i.e. no shareholders do not subscribe for the increased capital).
41
Translation Value from Dividend Discount Model Approach By using dividend discount model approach, the Financial Advisor would evaluate value of BT’s shares from the value of dividend and capital gain upon sale of share in the future. The following is a formula used in the calculation: V(0) =
Whereas
D(1) + D(2) + D(3) + D(4) + D(5)+V(5) 2 3 4 1+Ke (1+Ke) (1+Ke) (1+Ke) (1+Ke)5 V(0) D(t) Ke V(5)
= = = =
Present value of BT’s shares in the current year Dividend to be paid in year t Rate of return on equity Value of BT’s shares in the 5th year (“Terminal Value”) calculated from the average price to book value ratio of comparable banks in the industry14 multiplied by BT’s book value at the end of the 5th year
For Ke, Capital Asset Pricing Model (CAPM) is used in the calculation as follows: Rate of return on equity (Ke) =
Rf + ß (Rm-Rf)
Whereas: -
Rate of return on risk free investment (Rf), referred from 10-year government bond interest, is 4.87% per annum (data as at 10 October 2007 from www.thaibma.or.th). Theoretically, Rf should refer to interest rate of long-term government securities. Terms of Thai government bonds which still have liquidity are 10 years.
-
Beta (ß), calculated from the average historical ß of the Company during the past 5 years, equals 0.93 from Bloomberg.
-
Market return (Rm) is derived from the rate of return from the investment in the SET during the past 5 years, commencing from 11 October 2002 to 10 October 2007. Such calculation comprises returns from the fluctuation of the SET indices but excludes the returns on 19 and 20 December 2006 as such figures are considered indication of irregular events due to the implementation of measures regarding the reserve requirement on foreign currencies by the BOT. Moreover, the market returns during the past 5 years are used in the calculation as such period should cover the past fluctuation of market situations, which should represent the market return appropriate for present and future condition. Such period is also consistent with the period of the financial projection. The average 5-year market return on the SET is 22.14% per annum.
-
Therefore, Ke derived from the calculation equals 20.88%.
Price to book value ratios used in the calculation of Terminal Value range from 1.48 – 1.53 times based on the calculation of average historical P/BV ratio during the past 30 – 120 days of BankThai Plc., Kasikornbank Plc., Bank of Ayudhya Plc., TMB Bank Plc., 14
Which are Bank of Ayudhya Public Company Limited (“BAY”), BankThai Public Company Limited (“BT”), Kasikornbank Public Company Limited (“KBANK”), Siam City Bank Public Company Limited (“SCIB”), TMB Bank Public Company Limited (“TMB”) and Tisco Bank Public Company Limited (“TISCO”).
42
Translation Siam City Bank Plc and Tisco Bank Plc. The rate of return on equity (Ke) stood at 20.88%. Present value of dividend cashflow (million Baht) Present value of Terminal Value (million Baht) Present value of total shareholders’ equity (million Baht) No. of shares (million shares) Price per share (Baht per share)
P/BV = 1.48 times 1,216 10,230 11,445
P/BV = 1.53 times 1,216 10,575 11,791
6,675 1.72
6,675 1.77
As shown in the above table, appropriate value of BT’s ordinary shares according to the dividend discount model approach is in the range of 1.72 Baht per share to 1.77 Baht per share. Sensitivity Analysis In order to examine the effect of the rate of return on equity (Ke) to the valuation of the Company, the Financial Advisor has conducted a sensitivity analysis for DDM approach. In calculating present value, it sensitizes the rate of return on equity (Ke) while the average price to book value per share ratio is in the range of 1.48 to 1.53 times which is the average price to book value per share ratio during the period of 30 – 120 days prior to the date BT’s BOD passed the resolution on 11 October 2007 regarding the approval of the offering of the remaining shares after rights offering. The calculation of Terminal Value under each scenario can be illustrated as follows: Rate of Return on Equity (Ke) (%) 19.88 20.38 20.88 21.38 21.88
Average Price to Book Value Per Share Used in Terminal Value Calculation 30 Days 60 Days 90 Days 120 Days P/BV = 1.49 P/BV = 1.51 P/BV = 1.53 P/BV = 1.48 Times Times Times Times 1.79 1.81 1.83 1.78 1.76 1.78 1.80 1.75 1.73 1.75 1.77 1.71 1.69 1.71 1.73 1.68 1.66 1.68 1.70 1.65
From the above sensitivity analysis, the value of BT’s shares is in the range of 1.65 Baht per share to 1.83 Baht per share. Summary of the Opinion on Value of the Ordinary Shares Summary of the value of BT’s share deriving from various approaches is provided in the following table: Valuation Approach 1. Book Value Approach 2. Adjusted Book Value Approach 3. Market Value Approach 4. Market Comparable Approach
Share Value (Baht Per Share) 2.26 2.20 3.03 – 3.12
43
Translation Valuation Approach - Price to Book Value Approach - Price to Earning Approach 5. Dividend Discount Model Approach
Share Value (Baht Per Share) 5.77 – 5.99 N/A 1.65 – 1.83
According to the above table, the price of BT’s share ranges from 1.65 – 5.99 Baht per share. The Financial Advisor is of the opinion that book value approach and adjusted book value approach are not appropriate for BT’s share valuation, because these approaches evaluate BT’s value based on the operating performance in the past at a specific point of time only without considering its operating performance and economic trend in the future. Therefore, these approaches may not reflect the real value of BT. The Financial Advisor views that the price to book value approach is not appropriate although the calculation is based on the average P/BV of 5 comparable banks, with similar business to BT, whose total assets as at 30 June 2007 is greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET. This is because BT had substantial investments in overseas debt securities, especially CDO’s and structured notes which are affected from subprime crisis. As a result, BT is required to make additional provisioning for allowance for impairment of investment while other banks used in the comparison had no or fewer proportion of investment in CDO’s and structured notes. Therefore, share value derived from this approach may not reflect the real value of BT. The Financial Advisor is of the opinion that the appropriate approaches for BT’s share valuation are market value approach and dividend discount model approach. According to the market value approach, share value is in the range of 3.03 – 3.12 Baht per share. The Financial Advisor views that this approach is appropriate as the market price adopted in the valuation is the weighted average price during the period of 7 – 30 business days prior to the date of BT’s BOD meeting to approve the offering of the remaining shares from rights offering to Private Placement Investors. Share prices during such period should already reflect BT’s recent operating performance. The Financial Advisor opines that the dividend discount model approach is appropriate because this approach takes into account not only BT’s past performance but also the performance and business plan in the future as a result of an adjustment in BT’s business operation strategy, including potential effect from devaluation of investment in structured notes, which, therefore, should reflect the true value of BT. The appropriate value of share deriving from market value approach and dividend discount model approach ranges from 1.65 – 3.12 Baht per share. Furthermore, BT intends that the offering price to the Private Placement Investors will be higher than the offering price in the rights offering. In addition, shares offered to the FIDF and Newbridge in this offering are the remaining shares in which the existing shareholders decide not to exercise their subscription rights. It is, therefore, not the intention of BT to issue the new shares to be offered to the FIDF and Newbridge. The offering of such remaining shares would also help ensure that BT will obtain the full amount of proceeds from capital increase as planned.
44
Translation
Appropriateness of the Condition of the Transactions BT expects it will obtain proceeds from the offering of the remaining shares not subscribed by the existing shareholders under the rights offering to the Private Placement Investors within December 2007. In the allotment of the shares to the Private Placement Investors including the FIDF, Newbridge, Blum, MSOF and/or some of the existing shareholders who are not connected persons, BT will equally allocate the remaining shares to the FIDF and the Group of New Investors in order to create fairness and balancing of power. The Financial Advisor views that such payment condition is in accordance with normal practice.
5.
Summary of the Opinion of the Financial Advisor
BT’s Board of Directors will propose to the shareholders’ meeting to seek approval on the allotment of the remaining increased ordinary shares after the rights offering to the Private Placement Investors which include the FIDF and Newbridge at the price of 1.75 Baht per share (such price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price of the private placement offering, provided that such price shall not be lower than 1.00 Baht per share and the offering price of the rights offering). The allotment of the remaining shares after the rights offering to the FIDF and Newbridge will provide the following benefits to BT:
Help ensure that proceeds BT will obtain from the fund raising will be in the amount as planned, thereby enabling the Company to maintain its financial status in accordance with the BOT’s requirement and to expand its business according to the determined business plan.
However, weaknesses of the share offering to the FIDF and Newbridge to BT are as follows:
Earnings per share and rate of return on equity of other shareholders may immediately decline if the remaining shares after subscription by the existing shareholders are allotted in form of private placement offering instead of canceling them and subsequently increasing capital in the future should fund raising be required.
The shareholding proportion of the FIDF and Newbridge may increase to 42.43% and 34.54%, respectively (under the assumption that all other shareholders, apart from the Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are offered to the FIDF and Newbridge). Therefore, it will be highly possible that the FIDF and Newbridge will have a controlling power in the agenda which require three fourths voting approval from the shareholders’ meeting. However, the two groups of major shareholders, i.e. the FIDF and the Group of New Investors, will have equal percentage of shareholding and, therefore, will be able to balance the power of each other in the shareholders’ meeting.
45
Translation Furthermore, BT’s offering of the remaining shares after the rights offering in a private placement as compared with the offering of shares to other investors will provide the following benefits and weaknesses:
The FIDF Private placement offering to the FIDF will help BT continue to obtain full support from the FIDF should BT need financial assistance in the future while mitigating the risk of shares not being fully subscribed. It would help ensure that proceeds to be obtained from the capital increase will be in the amount as planned. Additionally, equal offering of the remaining increased shares to the FIDF and the Group of New Investors will allow equivalent percentage of shareholdings between the two groups of major shareholders, thereby balancing the power of each other. However, other shareholders may be affected from the share offering to the FIDF as the shareholding percentage of other existing shareholders wishing to subscribe for the shares in the amount in excess of their rights but not allotted with the excess shares may not increase in the same proportion as that of the FIDF. Also, as it is possible that the offering price may be lower than the market price during the offering period, if other existing shareholders wish to acquire additional shares of BT, they would need to purchase the shares at the market price. As a result, the cost of share acquisition of other existing shareholders may be higher than that of the FIDF.
Newbridge Private placement offering to Newbridge will help BT continue to obtain continual support from such group of investors equipped with experiences and expertise in global financial services business. Additionally, equal offering of the private placement shares to the Group of New Investors and the FIDF will allow equivalent percentage of shareholdings between the two groups of major shareholders, thereby balancing the power of each other. However, other shareholders may be affected from the share offering to Newbridge as the shareholding percentage of other existing shareholders wishing to subscribe for the shares in the amount in excess of their rights but not allotted with the excess shares may not increase in the same proportion as that of Newbridge. Also, as it is possible that the offering price may be lower than the market price during the offering period, if other existing shareholders wish to acquire additional shares of BT, they would need to purchase the shares at the market price. As a result, the cost of share acquisition of other existing shareholders may be higher than that of Newbridge. Furthermore, there remains the risk that the private placement shares may not be fully subscribed if Newbridge is not granted a waiver from the Ministry of Finance to hold more than 24.99% of BT’s shares.
The Financial Advisor has considered the offering price of the shares based on various valuation approaches. Appropriate approaches used in the valuation of BT’s shares are market value approach and dividend discount model approach. Appropriate value of the share ranges from 1.65 – 3.12 Baht per share. Furthermore, the shares to be offered to the Private Placement Investors are the remaining shares after subscription of the existing shareholders while BT intends that the offering price to the Private Placement Investors will be higher than the price offered to the existing shareholders. It is, therefore, considered the decision of the existing shareholders not to exercise their subscription rights. It is not the intention of BT to issue the new shares to be offered to the Private Placement Investors. 46
Translation However, current offering price of 1.75 Baht per share is less than 90% of the weighted average closing price of BT’s shares during the period of 7 business days prior to the date the Board of Directors approved such capital increase which was equal to 3.107 Baht per share. This, therefore, may be considered the offering of the newly issued shares at low price pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543 Regarding Application and Approval of the Offering of Newly Issued Shares. The Financial Advisor views that the shareholders should resolve to approve the entering into these connected transactions as current offering price of 1.75 Baht per share is within the range of the share prices derived from the valuation of the Financial Advisor of 1.65 – 3.12 Baht per share. However, if there is any negative change in market conditions that changes the offering price to be lower than 1.65 Baht per share, such offering price will be lower than the appropriate price. Additionally, the FIDF is the major shareholder of BT and has always provided support to BT’s business operation in the past. The offering to Newbridge, an expert with considerable experiences in financial services business, will help ensure that the Company will obtain continual support from Newbridge and its co-investors. Also, this offering of the increased capital is the offering of the remaining shares from the rights offering to the Private Placement Investors in which BT intends that the offering price will be higher than the price offered to the existing shareholders. Therefore, this private placement offering will help ensure that proceeds from capital increase will be sufficient for BT’s business expansion and its operation according to the plan. However, a decision to cast approval voting for the entering into these transactions is at sole discretion of BT’s shareholders. The Financial Advisor has disclosed related information of BT and given the opinion based upon the information supplied by BT, including the interview with BT’s management and officers, on the assumption that such information and assumptions are reliable, complete and accurate. The shareholders should also study all information in the documents attached with this invitation letter for the shareholders’ meeting in order to make judgment and discretion for the decision to cast the vote appropriately. The Financial Advisor certifies that it has provided opinion cautiously in accordance with professional standard for the benefits of the shareholders.
Yours Sincerely, Thanathip Vidhayasirinun (Mr. Thanathip Vidhayasirinun) Managing Director Sage Capital Limited
47
At
54/2550
Date
22 October 2007
Re
Opinion of Independent Financial Advisor Regarding Connected Transaction of BankThai Public Company Limited
Attn
Board of Directors and Shareholders BankThai Public Company Limited
Whereas the Extraordinary General Meeting of the Shareholders no. 1/2007, held on 30 May 2007, approved the allocation of 2,224.90 million of newly issued shares of BankThai Public Company Limited (“BT” or the “Company”) to the existing shareholders (Rights Offering) at the ratio of 1 existing share to 1 new share at the price of 3.46 Baht per share, and to some existing shareholders in a private placement offering at the price of 3.48 Baht per share. Subsequently, BT did not offer the shares for sale according to the approval as prior to registering a capital increase of 2,224.90 million shares, it was obliged to register the capital reduction according to the resolution from the Annual General Meeting of the Shareholders on 24 April 2007. In this regard, under the Public Limited Companies Act, BT is required to submit any resolution regarding capital reduction to all creditors of the Company and to allow said creditors to object to the capital reduction within 2 months from the date of receipt of the said resolution. The last date for sending notice to the creditors was 8 May 2007. Therefore, the last date for submitting objections was 9 July 2007. After such expiry date, the Company had registered the capital reduction via par value reduction on 10 July 2007, registered the capital reduction via cancellation of all preferred shares issued to support the warrants on 12 July 2007, and registered the capital increase on 13 July 2007. After the completion of the aforementioned process, the market situation turned unfavorable to the offering of shares at the price approved by the shareholders’ meeting (BT’s market price on the Stock Exchange of Thailand (the “SET”) during 2 October 2007 – 10 October 2007 was 3.107 Baht per share, which was lower than the previous offering price of 3.46 Baht per share to the existing shareholders). Therefore, the Company deemed that if the offering was taken during that period, such capital increase may affect the funding to be used for its business operation as proposed for approval from the shareholders’ meeting. Accordingly, to create stability and strengthen business operations, competitiveness and capital sufficiency for BT’s business expansion, the Board of Directors’ meeting no. 19/2007, held on 11 October 2007, deemed appropriate to propose to the shareholders for approval on the cancellation of the resolutions relating to the above capital increase and on the allocation and offering of 4,449.80 million of newly issued shares to the existing shareholders whose names are registered as shareholders in the shareholders’ registrar book as of 26 October 2007 in proportion to each shareholding (Rights Offering). The remaining shares after the rights offering will be offered in private placement, provided that the amount of proceeds from such capital increase will be the same amount of capital previously approved by the Extraordinary General Meeting of the Shareholders no. 1/2007 (approximately 7.68 billion Baht), via the issuance and offering of 4,449.80 million shares, which is twice the amount approved by the Extraordinary General Meeting of the Shareholders no. 1/2007 by using the ratio of 1 existing share to 2 new shares, and the price per share, i.e. 1.73 Baht per share, is one half of the price previously offered to the existing shareholders (such an offering price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the
1
Translation Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price of the rights offering and not be lower than 1.00 Baht per share). Details regarding this proposal for capital increase to the Extraordinary General Meeting of the Shareholders no. 2/2007, to be held on 16 November 2007, as compared with the capital increase as previously approved by the shareholders’ meeting on 30 May 2007 can be summarized as follows: This Capital Increase Previous Capital Increase Obtained approval on 30 May Date of shareholders’ To be held on 16 November 2007 2007 meeting Share offering to the existing shareholders on a pro rata basis according to each shareholding (Rights Offering) No. of ordinary 4,449.80 million shares 2,224.90 million shares shares issued and offered Rights offering 1 existing share to 2 new shares 1 existing share to 1 new share ratio Offering price 1.73 Baht per share (such price may 3.46 Baht per share be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price of the rights offering and not be lower than 1.00 Baht per share) Share offering to specific investors via private placement offering No. of ordinary The remaining shares after the rights The remaining shares after the shares issued and offering rights offering offered Specific investors The existing shareholders of BT The existing shareholders of to which shares and/or other private placement BT and/or specific existing may be allotted investors, i.e. the Financial shareholders with holdings of Institutions Development Fund (the more than 10% of BT’s issued “FIDF”), TPG Newbridge Group by shares which may include the Newbridge Sukhothai Netherlands FIDF B.V. and/or other investment vehicle of TPG Newbridge Group (“Newbridge”), Blum Strategic III BT Hong Kong Limited (“Blum”), MSOF Hong Kong BT Limited (“MSOF”) and/or other existing
2
Translation
Offering price
Offering period
This Capital Increase shareholders (altogether to be referred to as “Private Placement Investors”) 1.75 Baht per share (such price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price for the private placement and not be lower than 1.00 Baht per share and the offering price of the rights offering) The Board of Directors shall complete the offering within 12 months of the date of approval of the shareholders’ meeting
Offering price Should the price be equal to 1.75 compared with the Baht per share, such price will be market price equal to 56.32% of the weighted average closing price during the past 7 business days prior to the date BT’s Board of Directors passed the resolution. It is, therefore, likely that the offering price may be lower than the market price by more than 10%. Accordingly, the offering of newly issued shares at the below market price should be proposed to the shareholders’ meeting for approval.
Previous Capital Increase
3.48 Baht per share
The Board of Directors shall complete the offering within 12 months of the date of approval of the shareholders’ meeting The offering price of 3.48 Baht per share equals 90.08% of the weighted average closing price during the past 7 business days prior to the date BT’s Board of Directors passed the resolution.
However, if there is no allotment of unsubscribed shares in a private placement or if the shares are not sold in full, the Board of Directors may propose this matter to the next shareholders’ meeting to cancel all remaining shares and to decrease registered capital by the amount of the number of unsold shares. According to the above resolutions from the Board of Directors’ meeting, should there be any existing shareholders of BT who do not exercise their rights to subscribe for the increased capital under the rights offering and the remaining shares are allotted to the FIDF and Newbridge, BT’s existing major shareholders holding more than 10% of BT’s registered and paid-up capital while the allotted shares may be greater than 3% of net tangible assets
3
Translation (NTA), such transactions with the FIDF and Newbridge will be considered connected transactions pursuant to the Notification of the Board of Governors of the Stock Exchange of Thailand Regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, B.E. 2546. Accordingly, BT will be obliged to disclose information of the transactions to the SET and to seek approval from the shareholders’ meeting. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote, excluding those shareholders with interest in the transaction, must be obtained. The FIDF, Newbridge, Blum and MSOF will not have the rights to vote on related agenda. In addition, the offering to Newbridge will be permitted upon BT’s compliance with the notifications of the Securities and Exchange Commission, the SET, and any related rules and regulations, including the approval from the Ministry of Finance allowing Newbridge to hold more than 24.99% of BT’s shares. Furthermore, comparing the price of 1.75 Baht per share with the weighted average closing price of BT’s shares during the past 7 business days prior to the date BT’s Board of Directors passed the above resolution, i.e. 2 – 10 October 2007, it is likely that the private placement offering price of the remaining shares after the rights offering may be lower than the market price by more than 10% pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543. As a result, the Board of Directors deemed appropriate to propose to the shareholders’ meeting for approval. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote must be obtained while no more than 10% of total votes of the shareholders present at the meeting shall object this share offering. The FIDF, Newbridge, Blum and MSOF will not have the rights to vote on related agenda. The date to determine the offering price of the remaining increased capital to Private Placement Investors at this time will be the first offering date of the remaining unsubscribed shares to the Private Placement Investors. Therefore, the calculation of the percentage of the offering price of the remaining shares to the market price cannot be calculated at this moment. The calculation of value of the transaction is based on the probability that the remaining increased capital in which some of BT’s existing shareholders do not exercise their rights to subscribe for the offering of increased capital to BT’s existing shareholders will be offered to the FIDF and Newbridge using the closing price on the date prior to the date the Board of Directors resolved to propose to the shareholders for approval on the new capital increase (the maximum number of shares used in calculating value of the transaction is determined under an assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). It is found that value of the transaction of the FIDF will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. Value of the transaction of Newbridge will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. It is, therefore, possible that value of the transactions will be greater than 3% of value of BT’s net tangible assets. Accordingly, BT will be obliged to disclose information of the transactions to the SET and to seek approval from the shareholders’ meeting. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote, excluding those shareholders with interest in the transaction, must be obtained. The meeting of BT’s Board of Directors resolved to propose to the Extraordinary General Meeting of the
4
Translation Shareholders no. 2/2007 which will be convened on 16 November 2007 to consider the approval to enter into the aforementioned connected transactions of the Company. Accordingly, BT has appointed Sage Capital Limited (“Financial Advisor”) to act as independent financial advisor to provide opinion to the shareholders on the reasonableness, fairness of the price and condition of the transaction. The Financial Advisor has considered such transactions based on information and materials supplied by BT together with information provided to public, including the resolutions of BT’s Board of Directors approving the entering into such transactions, BT’s financial statements, BT’s list of shareholders, BT’s list of the Board of Directors, Affidavit, annual registration statement (“Form 56-1”), 5-year financial projections as prepared by the management, as well as the interviews with BT’s management and related officers and other related documents. Nevertheless, opinion of the Financial Advisor is provided based on the assumption that the information and assumptions supplied are reliable, complete and accurate, and are not amended or altered from those received by the Financial Advisor. It is also provided based on the economic conditions and information made aware of during the time of the study only. Therefore, should such factors be significantly changed, BT may be affected from such change accordingly and therefore it may affect the opinion of the Financial Advisor as provided herein. Appropriate price of the remaining increased capital from the rights offering which is further offered to Private Placement Investors by BT may thus also be changed. In evaluating BT’s share, the Financial Advisor has considered the offering price of the shares based on 5 valuation approaches, namely, book value approach, adjusted book value approach, market value approach, market comparable approach and dividend discount model approach. Appropriate approaches used in the valuation of BT’s shares are market value approach and dividend discount model approach. Appropriate value of the share ranges from 1.65 – 3.12 Baht per share. Furthermore, the shares to be offered to the Private Placement Investors are the remaining shares after subscription of the existing shareholders while BT intends that the offering price to the Private Placement Investors will be higher than the price offered to the existing shareholders. It is, therefore, considered the decision of the existing shareholders not to exercise their subscription rights. It is not the intention of BT to issue the new shares to be offered to the Private Placement Investors. However, current offering price of 1.75 Baht per share is less than 90% of the weighted average closing price of BT’s shares during the period of 7 business days prior to the date the Board of Directors approved such capital increase which was equal to 3.107 Baht per share. This, therefore, may be considered the offering of the newly issued shares at low price pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543 Regarding Application and Approval of the Offering of Newly Issued Shares. The Financial Advisor views that the shareholders should resolve to approve the entering into these connected transactions as current offering price of 1.75 Baht per share is within the range of the share prices derived from the valuation of the Financial Advisor of 1.65 – 3.12 Baht per share. However, if there is any negative change in market conditions that changes the offering price to be lower than 1.65 Baht per share, such offering price will be lower than the appropriate price. Additionally, the FIDF is the major shareholder of BT and has always provided support to BT’s business operation in the past. The offering to Newbridge, an expert with considerable experiences in financial services business, will help ensure that the
5
Translation Company will obtain continual support from Newbridge and its co-investors. Also, this offering of the increased capital is the offering of the remaining shares from the rights offering to the Private Placement Investors in which BT intends that the offering price will be higher than the price offered to the existing shareholders. Therefore, this private placement offering will help ensure that proceeds from capital increase will be sufficient for BT’s business expansion and its operation according to the plan. Various issues on the provision of the Financial Advisor’s opinion can be summarized as follows:
6
Translation
1.
Background
BankThai Public Company Limited is the consolidation of Union Bank of Bangkok Public Company Limited, 12 intervened finance companies1 and Krungthai Thanakit Finance Public Company Limited2 pursuant to the order of the governmental entity on 14 August 1998, resolution from the Cabinet on 27 October 1998 and notification of the Ministry of Finance dated 22 December 1998. The consolidated entity subsequently changed the name to “BankThai Public Company Limited”, resulting in the establishment of a new commercial bank on 21 December 1998. The FIDF acquired major shareholding of BT. Subsequently, the SET approved trading of BT’s ordinary shares on the SET since 30 March 2001 by using “BT” to be the trading sign. Details of BT’s major developments can be summarized below. The Bank of Thailand (the “BOT”) issued an order to the Union Bank of Bangkok Public Company Limited to reduce its registered capital via par value reduction from 10 Baht per share to 0.01 Baht per share, resulting in a decrease of the registered capital of the Union Bank of Bangkok Public Company Limited from 1,800 million Baht to 1.8 million Baht. The BOT then ordered that the Union Bank of Bangkok Public Company Limited increase its registered capital from 1.8 million Baht to 12,334 million Baht through an issuance of increased ordinary shares totaling 1,233,220 million shares at 0.01 Baht per share, all of which being allotted to the FIDF. As a result, the bank’s registered and paid-up capital amounted to 12,334 million Baht with the FIDF being 100% shareholder. Its capital fund was also sufficient to serve the measure of consolidation among the Union Bank of Bangkok Public Company Limited, 12 intervened finance companies and Krungthai Thanakit Finance and Securities Public Company Limited, the core of consolidation to be converted into the new commercial bank, with the FIDF being major shareholder since then. Consolidation approach pursuant to the resolution of the Cabinet on 27 October 1998 and the notification of the Ministry of Finance on 22 December 1998 was:
To transfer all assets and liabilities of 12 intervened finance companies to Krungthai Thanakit Finance and Securities Public Company Limited.
To transfer all assets and liabilities of Krungthai Thanakit Finance and Securities plc. to the Union Bank of Bangkok Public Company Limited.
Upon completion of both of the above processes, Krungthai Thanakit Finance and Securities Public Company Limited and 12 intervened finance companies shall return the financial business licenses to the Ministry of Finance accordingly. The Union Bank of Bangkok Public Company Limited, on 21 December 1998, changed its name to BankThai Public Company Limited.
1
Consisting of: Nava Finance and Securities Plc. Thai Summit Finance and Securities Co., Ltd. Mahatun Finance Co., Ltd. Bangkok Asian Finance Co., Ltd. 2
Vajiradhanathun Finance Co., Ltd. Erawan Trust Co., Ltd. Progressive Finance Co., Ltd. Dhana Siam Finance and Securities Plc.
First City Investment Plc. Ksit Finance and Securities Plc. Union Asia Finance Plc. IFCT Finance and Securities Plc.
Previously named Krungthai Thanakit Finance and Securities Public Company Limited.
7
Translation In year 1999 BT changed par value of the ordinary shares from 0.01 Baht per share to 10 Baht per share and increased additional shares of 40,000 million Baht via issuance of noncumulative preferred shares, convertible into ordinary shares and entitled to be affected from capital reduction after the ordinary shares in the amount of 4,000 million shares at par value of 10 Baht per share. The allotment is made through a private placement to the FIDF for the entire amount at the price equal to par value, i.e. 10 Baht per share. The FIDF has made payment for 3,706.80 million shares at the price of 10 Baht per share totaling 37,068 million Baht. As a result, BT’s registered capital increased to 52,334 million Baht and the issued shares to 49,402 million Baht with the FIDF being 100% shareholder. Subsequently in year 2000, BT reduced its registered capital by 2,932 million Baht by canceling un-issued preferred shares and increased its registered capital via the issuance of ordinary shares totaling 260.05 million shares with the par value of 10 Baht per share. Such increased capital was allotted through a private placement offering to the shareholders of Krungthai Thanakit Finance Public Company Limited at the price of 5.6184 Baht per share. The purchase was paid with the ordinary shares of Krungthai Thanakit Finance Public Company Limited. Value of the bank’s ordinary shares, as appraised by BT, was equal to 1.3566 Baht per share, resulting in share swap ratio of 0.2414478 BT’s share per 1 share of Krungthai Thanakit Finance Public Company Limited. After such share swap, BT’s registered and paid-up capital stood at 52,002.5 million Baht with the FIDF being major shareholder holding 5,145.3 million shares (1,438.5 million ordinary shares and 3,706.8 million preferred shares), accounting for 98.94% of total issued shares. During the second half of year 2000, BT conducted in compliance with its approach of compensation of non-performing assets as approved by the Cabinet on 19 September 2000. It made a capital reduction via cancellation of the entire preferred shares and returned a total preferred share capital of 37,068 million Baht to the FIDF to relieve the FIDF’s burden and to adjust the amount of capital to appropriate level. BT recorded the FIDF as creditor and issued the promissory notes to the FIDF, payable within 1 January 2006. It had gradually made partial repayment of 15,068 million Baht of the promissory notes in cash. The remaining amount of around 22,000 million Baht was mutually agreed by the FIDF and BT to set off against the compensation of the non-performing assets transaction BT recorded as receivables from the FIDF under the gain/loss sharing and yield maintenance agreement. BT had fully set off such amount at the end of year 2005. Additionally, as the FIDF had been a sole absorber of burden incurred from the financial difficulty and capital increase of BT in the past, to provide an opportunity to the FIDF to be compensated from an improvement in BT’s business status and operation, on 9 May 2001 BT issued 10-year warrants to purchase its preferred shares (“Warrants”) totaling 3,706.80 million units maturing on 8 May 2011 to the FIDF without cost. The Warrants have transfer restriction, i.e. they cannot be transferred. One Warrants unit can be converted into 1 BT’s preferred share at the price of 10 Baht per share. BT increased its registered preferred share capital by 3,706.80 million shares at the value of 10 Baht per share as full reserve for such Warrants and had registered with the registrar of the public limited company. BT’s registered capital was thus equal to 52,002.50 million Baht, consisting of 1,493.45 million ordinary shares at par value of 10 Baht per share and 3,706.80 million preferred shares at par value of 10 Baht per share. Its issued shares stood at 14,934.50 million Baht with the FIDF being major shareholder holding total issued ordinary shares of 1,438.45 million shares, accounting for 96.32% of BT’s total ordinary shares.
8
Translation
In year 2002 the FIDF decreased its shareholding in BT pursuant to the government’s privatization policy through disposal of 707 million of BT’s ordinary shares held by the FIDF to public. Accordingly, its shareholding in BT declined from 96.32% to 48.98% of BT’s total shares. In term of Warrants issued to the FIDF, to prevent the effect to BT’s share prices and to limit the FIDF’s holding in BT’s shares not to exceed 50% of total issued shares, BT’s Board of Directors meeting no. 13/2002 held on 28 August 2002 resolved to approve the repurchase of Warrants in order to cancel such Warrants. Warrant buyback option agreement (the “Agreement”) was endorsed by BT and the FIDF on 23 September 2002 together with a payment of 300 million Baht to the FIDF as compensation for its granting of the above repurchase rights3. Major terms and conditions of such Agreement can be summarized as follows:
The FIDF agrees to grant the rights to buy back Warrants at the price of 0.27907 Baht per unit, plus interest which is calculated from BT’s average cost of interest on all type of deposits commencing from 23 September 2002 to the buyback date.
Exercise period commences from 23 September 2002 to 8 May 2010.
The FIDF agrees not to exercise its conversion rights for the duration of the exercise period of BT. At the end of the repurchase period, if BT does not exercise its rights to repurchase the Warrants, or does not fully exercise the rights over 3,706.80 million units, the FIDF may exercise its rights to convert the remaining Warrants into preferred shares in accordance with the original conditions of the Warrants.
The repurchase rights must be exercised only in order to cancel the Warrants. BT cannot transfer such Warrants to other person.
To strengthen the capital structure and to increase future competitiveness, BT’s Extraordinary General Meeting of the Shareholders as convened on 3 October 2006 and 21 November 2006 passed the resolutions approving an offering of increased capital of BT. Later on, BT’s Board of Directors meeting no. 5/2007 held on 3 March 2007 resolved to approve the allotment of increased ordinary shares and determine the offering price of increased ordinary shares to a group of new investors, i.e. Newbridge, Blum and MSOF (“Group of New Investors”), in the total amount of 731.45 million shares at the price of 4.17 Baht per share. After the Annual General Meeting of Shareholders passed the resolution on 24 April 2007 granting a waiver of tender offer for all securities of the Company to such Group of New Investors, the Group of New Investors has completed the acquisition of BT’s shares on 25 April 2007. Accordingly, BT’s current registered capital stood at 61,402.50 million Baht, consisting of 2,433.45 million ordinary shares at par value of 10 Baht per share and 3,706.80 million preferred shares at par value of 10 Baht per share, and issued and paidup capital at 22,249.00 million Baht. Newbridge is a major shareholder holding 556.22 million ordinary shares, accounting for 24.99% of issued shares while Blum and MSOF each
3
On 16 February 2007, BT’s Board of Directors passed the resolution retrospectively approving the accrual of Warrants buyback transaction at a total repurchase price of 1,034.46 million Baht plus interest in accordance with the conditions stipulated in the Agreement. Interest calculated up to 31 December 2006 amounted to 111.18 million Baht or a total of 1,145.64 million Baht. BT had already realized payment of Warrants buyback directly against retained deficits of the financial statements for the year 2006. After obtaining approval from the Extraordinary General Meeting of the Shareholders on 30 May 2007, purchase of such Warrants from the FIDF is now completed.
9
Translation holds 87.61 million ordinary shares, accounting for 3.94% of issued shares per person. As such, shareholding percentage of the FIDF declined to 32.88% of the issued shares.4 Additionally, in the meeting on 27 February 2007, the Cabinet acknowledged the increase of BT’s additional capital of 2,224.90 million shares in form of an offering of ordinary shares to the existing shareholders at the ratio of 1:1, and allowed BT to decrease its capital via a reduction of par value to eliminate retained deficits and share discount to enable BT to make dividend payment. After obtaining approval from the shareholders’ meeting and the Ministry of Finance, BT, on 10 July 2007, reduced its par value from 10 Baht per share to 3.75 Baht per share. As a result, its registered capital is reduced to 23,025.94 million Baht, comprising 2,433.45 million ordinary shares and 3,706.80 million preferred shares, and issued and paidup capital to 8,343.38 million Baht. Subsequently, as approved by the shareholders’ meeting on 30 May 2007, on 12 July 2007 BT reduced its capital via cancellation of 3,706.80 million preferred shares issued to support the Warrants which were bought back from the FIDF, and the remaining unsold ordinary shares of 208.55 million shares. Additional capital of 2,224.90 million shares was registered on the next day, resulting in a change in BT’s registered capital to 16,686.75 million Baht, divided into 4,449.80 million ordinary shares at par value of 3.75 Baht per share, and issued and paid-up capital to 8,343.38 million Baht, divided into 2,224.90 million shares at par value of 3.75 Baht per share. BT’s action according to the plan to strengthen its capital structure and increase its competitiveness in the future can be summarized as follows:
4
On 22 May 2007, Newbridge transferred 222,490 shares to Blum in order to comply with the determined percentage holding of Newbridge. Accordingly, at present Newbridge and Blum holds 556.00 million shares and 87.84 million shares, accounting for 24.99% and 3.95% of the issued shares, respectively.
10
Translation Completed
Capital increase to the Group of New Investors, i.e. Newbridge, Blum and MSOF, in the amount of 731.45 million shares, at par value of 10 Baht per share, or 32.88% of BT’s total issued shares after capital increase, at the price of 4.17 Baht per share totaling 3,050.15 million Baht. - Annual General Meeting of the Shareholders on 24 April 2007 granted a waiver of tender offer of all securities of the Company to such Group of New Investors. - On 25 April 2007 the acquisition of BT’s shares and payment for the said shares by the Group of New Investors to BT was complete. BT’s issued and paid-up capital hence increased from 14,934.50 million Baht to 22,249 million Baht.
Completed
Reduction of registered capital via par value reduction from 10 Baht per share to 3.75 Baht per share - Obtained approval from the Annual General Meeting of the Shareholders on 24 April 2007. - Completed the registration of capital reduction to the Ministry of Commerce on 10 July 2007 after no creditors file an objection within 2 months from the date the notification letter of resolution was received and after an approval from the Ministry of Finance was granted. After such reduction of registered capital, issued and paid-up capital of BT declined from 22,249 million Baht to 8,343 million Baht.
Completed
Repurchase of 3,706.80 million units of Warrants to purchase preferred shares from the FIDF at the price of 0.27907 Baht per unit, plus interest which is calculated from the average cost of BT’s interest on all types of deposits from 23 September 2002 to the buyback date. - Obtained approval from the Extraordinary General Meeting of the Shareholders on 30 May 2007. - Made payment on for the repurchase of Warrants to the FIDF on 30 May 2007. - Completed the registration of capital reduction via cancellation of preferred shares and all remaining unsold shares of 3,706.80 million shares and 208.55 million shares, respectively, on 12 July 2007, resulting in a decrease in BT’s registered capital from 23,026 million Baht to 8,343 million Baht.
Agenda to be proposed for cancellation
Offering of increased capital to the existing shareholders totaling 2,224.90 million shares with the par value of 3.75 Baht per share at the ratio of 1:1 - Obtained approval from the Extraordinary General Meeting of the Shareholders on 30 May 2007 at the offering price of 3.46 Baht per share, and should there be any remaining shares from the rights offering, the Board of Directors is authorized to allot the said remaining shares through private placement offering to specific existing shareholders at the price of 3.48 Baht per share. - Completed the registration of capital increase to the Ministry of Commerce on 13 July 2007, resulting in the increase in registered capital from 8,343 million Baht to 16,687 million Baht.
Agenda to be proposed for approval
Offering of increased capital to the existing shareholders totaling 4,449.80 million shares with the par value of 3.75 Baht per share at the ratio of 1:2 - Obtained approval from the Board of Directors’ meeting on 11 October 2007 to reduce the unsold registered capital and to increase the registered capital to 25,030 million Baht at the offering price of 1.73 Baht per share at the ratio of 1 existing share to 2 new shares, totaling 4,449.80 million of newly issued shares. - The meeting of BT’s Board of Directors resolved that should there be any remaining shares from the rights offering, BT may allot the remaining shares to Private Placement Investors at the price of 1.75 Baht per share. - If there is any negative change in market conditions, the Board of Directors or the President or any persons as designated by the Board of Directors shall be empowered to amend or change the offering price, provided that the new offering price shall not be higher than the determined offering price to the existing shareholders in proportion to each shareholding (Rights Offering) and in a private placement, provided that such price shall not be lower than 1.00 Baht per share while the private placement offering price shall not be lower than the rights offering price. - Will propose to the Extraordinary General Meeting of the Shareholders no. 2/2007 to be convened on 16 November 2007 for approval. It is expected that the capital increase will complete within December 2007. After capital increase, BT’s issued and paid-up capital will increase from 8,343 million Baht to 25,030 million Baht (under the assumption that the increased shares are fully allotted).
11
Translation On 11 October 2007, the meeting of BT’s Board of Directors no. 19/2007 passed the resolution approving the proposal to the shareholders’ meeting to consider approval of the allotment of the newly issued ordinary shares to the existing shareholders on a pro rata basis according to their respective shareholding percentage at the ratio of 1 existing share to 2 new shares at the price of 1.73 Baht per share (such price may be amended if the shareholders’ meeting resolves to empower the Board of Directors or the President or any persons as designated by the Board of Directors to amend or change the offering price if there is any negative change in market conditions. However, the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price to the existing shareholders in proportion to each shareholding (Rights Offering), provided that such price shall not be lower than 1.00 Baht per share.). Such price may be lower than the market price by more than 10% pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543. To ensure that BT will obtain proceeds from this offering of increased capital in the amount according to BT’s business plan in full while the process can be completed shortly, BT’s Board of Directors’ meeting resolved to approve the proposal to its shareholders’ meeting to seek approval on the allotment and offering of the remaining shares from capital increase in which some existing shareholders of the Company do not exercise their rights to subscribe for the above increased capital to BT’s existing shareholders and/or some existing shareholders holding more than 10% of BT’s registered and paid-up capital and/or other private placement investors at the price of 1.75 Baht per share (such price may be amended if the shareholders’ meeting resolves to empower the Board of Directors or the President or any persons as designated by the Board of Directors to amend or change the offering price if there is any negative change in market conditions. However, the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price in a private placement, provided that such price shall not be lower than 1.00 Baht per share and the rights offering price.). Such price may be lower than the market price by more than 10% pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543. The FIDF and Newbridge will be ones of the shareholders allotted with the said remaining shares. Value of these transactions is calculated under the possibility that the remaining shares from capital increase in which some existing shareholders of the Company do not exercise their rights to subscribe for the increased capital to BT’s existing shareholders to the FIDF and Newbridge based on the closing price on the date prior to the date the Board of Directors deemed appropriate to propose to the shareholders for approval on new capital increase (the maximum number of shares used in calculating value of the transaction is determined under the assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). It is found that value of the transaction of the FIDF will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. Value of the transaction of Newbridge will range from 0 – 1,976 million Baht or accounting for 0 – 28.40% of BT’s value of net tangible assets as at 30 June 2007. It is, therefore, possible that value of the transactions with the FIDF and Newbridge will be greater than 3% of value of BT’s net tangible assets. Such transactions are then considered connected transactions pursuant to the Notification of the Board of Governors of the SET. As a result, BT will be obliged to seek approval of the transactions from BT’s Board of
12
Translation Directors, to disclose information of the transactions to the SET, and to seek approval from the shareholders’ meeting. At least three fourths of total votes of the shareholders present at the meeting and having the rights to vote, excluding those shareholders with interest in the transaction, must be obtained. 2.
Nature and Detail of the Connected Transactions
2.1 Date, Month and Year of the Transactions BT will proceed to offer the remaining shares from rights offering in which some of BT’s existing shareholders may not exercise their subscription rights to Private Placement Investors, which may include the FIDF and Newbridge, after the number of the remaining shares after the subscription of increased capital offering to BT’s existing shareholders is known (which is expected to be completed within December 2007), and after Newbridge obtains approval from the BOT and the Finance Minister allowing Newbridge to hold more than 24.99% shares (the result is expected to be known within December 2007). It is expected that the process should be completed within December 2007. 2.2 Type and Size of the Connected Transactions The offering of the remaining shares from increased capital offering to the existing shareholders of BT in which some of the existing shareholders do not exercise their rights to subscribe for the rights offering to the FIDF and Newbridge is considered connected transaction relating to assets and service category pursuant to the Notification of the Board of Governors of the SET Regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, B.E. 2546. Value of the transaction with the FIDF Maximum value of such transaction is assessed based on calculation method of the transaction value regarding assets and service by comparing the maximum amount of proceeds which may be obtained from the FIDF using the closing price as at 10 October 2007 which is the date prior to the date the Board of Directors resolved to propose to the shareholders for approval on the new capital increase (the maximum number of shares used in calculating value of the transaction is determined under the assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge) totaling around 1,975.97 million Baht with value of BT’s net tangible assets. Details are illustrated below: (Unit: million Baht) Maximum value of the transaction
=
Transaction value Value of net tangible assets*
=
1,975.97 * 100 (7,681.90 – 725.04)
13
Translation
=
28.40%
* Value of net tangible assets is calculated from BT’s consolidated financial statements as at 30 June 2007 (audited by the auditor).
Value of the transaction with Newbridge Maximum value of such transaction is assessed based on calculation method of the transaction value regarding assets and service by comparing the maximum amount of proceeds which may be obtained from Newbridge using the closing price as at 10 October 2007 which is the date prior to the date the Board of Directors resolved to propose to the shareholders for approval on the new capital increase (the maximum number of shares used in calculating value of the transaction is determined under the assumption that all other shareholders, apart from Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge) totaling around 1,975.97 million Baht with value of BT’s net tangible assets. Details are illustrated below: (Unit: million Baht) Maximum value of the transaction
=
Transaction value Value of net tangible assets*
=
1,975.97 * 100 (7,681.90 – 725.04)
=
28.40%
* Value of net tangible assets is calculated from BT’s consolidated financial statements as at 30 June 2007 (audited by the auditor).
Based on the calculation method of transaction value pursuant to the Notification of the Board of Governors of the SET Regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, B.E. 2546, value of the above transactions regarding assets and service with the FIDF and Newbridge is greater than 20 million Baht and more than 3% of net tangible assets value. Accordingly, to comply with the requirements of the notification of the Board of Governors of the SET, BT is obliged to seek a resolution from its shareholders’ meeting to consider the approval to enter into such transactions. At least three fourths of total votes of the shareholders or proxies present at the meeting and having the rights to vote must be obtained, provided that the shareholders with interest in the transactions will not be entitled to cast a voting to approve the entering into such transactions. 2.3 Related Counterparty and Relationship with BT Issuer of the increased shares:
BankThai Public Company Limited
Potential offeree of the remaining increased shares:
1. Financial (FIDF)
Institutions
Development
Fund
14
Translation
Description of relationship: -
Shareholding, whether direct or indirect, by major shareholders or authorized person of BT FIDF is BT’s major shareholder holding 32.88% of total issued and paid-up capital after acquisition of the increased capital by the Group of New Investors as at 9 May 2007.
-
Other relationship The Ministry of Finance5 has assigned 1 person, i.e. Mr. Pongpanu Svetarundra, as its representative to take a position of BT’s director. The FIDF has assigned 1 person, i.e. Mrs. Saowanee Suwannacheep, as its representative to take the position of BT’s director.
2. TPG Newbridge by Newbridge Sukhothai Netherlands B.V.6 Description of relationship: -
Shareholding, whether direct or indirect, by major shareholders or authorized person of BT Newbridge Sukhothai Netherlands B.V. is BT’s major shareholder holding 24.99% of total issued and paid-up capital after the acquisition of the increased capital by the Group of New Investors as at 9 May 2007.
-
Other relationship Newbridge has assigned 4 persons, i.e. Mr. Ranvir Dewan, Mr. Daniel Carroll, Mrs. Watanan Petersik and Mr. Daniel Poon, as its representatives to take the position of BT’s directors.
Therefore, there are 6 directors not entitled to attend the meeting concerning the allotment of the remaining shares not subscribed by some of the existing shareholders in the future and to cast the voting in BT’s Board of Directors meeting in the agenda regarding approval of an assignment of the rights to the FIDF and Newbridge to subscribe for the remaining increased shares, namely Mr. Pongpanu Svetarundra, Mrs. Saowanee Suwannacheep, Mr. Ranvir Dewan, Mr. Daniel Carroll, Mrs. Watanan Petersik and Mr. Daniel Poon (there are 6 directors who attended the meeting of BT’s Board of 5
The Ministry of Finance assigned its representative to participate in the Executive Board of Directors of the FIDF while the FIDF is responsible to report the accounting audit results to the Finance Minister and inform the Bank of Thailand. 6 Changed its name from Centerpoint Media Investment Netherlands B.V. to Newbridge Sukhothai Netherlands B.V. on 9 May 2007.
15
Translation Directors no. 19/2007 on 11 October 2007 in such agenda, namely Mr. Tawee Butsuntorn, Mr. Phirasilp Subhapholsiri, Mr. Preecha Oonchitti, Mr. Techapit Sangsingkeo, Mr. Dharin Divari and Mr. Chatchawal Eimsiri whereas Mr. Techapit Sangsingkeo, Mr. Dharin Divari and Mr. Chatchawal Eimsiri were the Audit Committee). 2.4 Total Value of Considerations and Term of Payment In case where the FIDF and Newbridge are granted the rights to subscribe for the remaining increased capital, each of the FIDF and Newbridge will be obliged to make payment for the remaining increased capital after the offering to BT’s existing shareholders in the maximum amount of approximately 1,115.47 million Baht within the determined timeframe which is expected to be within December 2007. 2.5 Details of the Securities Type of securities
Offering price
Number of ordinary shares The FIDF Newbridge Amount of proceeds to be paid The FIDF
Newbridge
: The remaining increased ordinary shares in which some of BT’s existing shareholders may not exercise their subscription rights for the rights offering : 1.75 Baht per share, which may be amended if there is any negative change in market conditions. However, the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price in a private placement, provided that such price shall not be lower than 1.00 Baht per share and the rights offering price. : 0 – 637.41 million shares 0 – 637.41 million shares : 0 – 1,115.47 million Baht using the offering price of 1.75 Baht per share in calculating the maximum amount of proceeds to be paid 0 – 1,115.47 million Baht using the offering price of 1.75 Baht per share in calculating the maximum amount of proceeds to be paid
The above maximum number of shares which may be allotted to the FIDF and Newbridge under the private placement offering is calculated under the assumption that all of the other shareholders apart from the FIDF, Newbridge, Blum, MSOF and BT’s subsidiaries holding BT’s ordinary shares do not exercise their rights to subscribe for the increased shares offered to BT’s existing shareholders and the entire remaining shares from such rights offering are equally offered to the FIDF and Newbridge. Details of the calculation are summarized below: Total number of increased shares offered under the = rights offering
4,449.80 million shares
16
Translation Less: The number of shares allotted to the FIDF according to its shareholding percentage The number of shares allotted to Newbridge according to its shareholding percentage The number of shares allotted to Blum according to its shareholding percentage The number of shares allotted to MSOF according to its shareholding percentage The number of shares allotted to BT’s subsidiary according to its shareholding percentage Maximum number of the remaining shares after the rights offering (1) 50% of (1)
=
1,462.90 million shares
=
1,112.01 million shares
=
175.67 million shares
=
175.22 million shares
=
249.18 million shares
=
1,274.82 million shares
=
637.41 million shares
2.6 Preliminary Information of BT, the Financial Institutions Development Fund and Newbridge Sukhothai Netherlands B.V. BankThai Public Company Limited -
Nature of Business: BT has been licensed by the Ministry of Finance and the relevant competent authorities to engage in commercial banking business, with focus on taking deposits and extending loans, together with other business which generates fee and service incomes such as financial consulting services and other financial products.
-
Registered and Paid-up Capital: After registration of the capital increase of 2,224.90 million shares to the Ministry of Commerce on 13 July 2007, BT’s current registered capital stood at 16,686.75 million Baht or 4,449.80 million ordinary shares at par value of 3.75 Baht per share. Total issued and paid-up capital equals 8,343.38 million Baht, comprising 2,224.90 million ordinary shares at par value of 3.75 Baht per share.
-
Shareholding Structure: Top 10 shareholders as at 9 May 2007, i.e. the closing date of register book to determine the rights to attend the Extraordinary General Meeting of the Shareholders no. 1/2007, can be listed as follows: No. 1. 2. 3. 4. 5. 6.
Name of Shareholders FIDF Newbridge Sukhothai Netherlands B.V.* Thailand Securities Depository Co., Ltd. for Depositor Blum Strategic III BT Hong Kong Limited* Citigroup Global Markets Inc. for MSOF Hong Kong BT Limited Pannasub Co., Ltd.
No. of Shares 731,450,194 556,002,558 89,662,424 87,835,063 87,612,573 74,672,500
% 32.88 24.99 4.03 3.95 3.94 3.36
17
Translation No. 7. 8. 9. 10. 11.
Name of Shareholders Thanachart Capital Public Company Limited BT Securities Company Limited for Investment and BT Securities Company Limited Social Security Office Krungthai Thanakit Finance Public Company Limited Others Total
No. of Shares 74,550,000 73,817,646
% 3.35 3.32
63,159,300 50,772,000 335,365,936 2,224,900,194
2.84 2.28 15.06 100.00
* Changed its name from Centerpoint Media Investment Netherlands B.V. to Newbridge Sukhothai Netherlands B.V. As at 9 May 2007 which is the closing date of shareholders’ register book, Newbridge held 556,225,048 shares. Subsequently on 22 May 2007, it transferred 222,490 shares to Blum in order to comply with the determined percentage holding of Newbridge. Accordingly, Newbridge’s holding was reduced to 556,002,558 shares while Blum’s holding was increased to 87,835,063 shares.
-
BT’s Board of Directors: List of BT’s latest Board of Directors (“BOD”) as at 5 October 2007 are as follows: Name of the BOD
Title
Note
1
Mr. Tawee Butsuntorn
Chairman of the Board
-
2
Mr. Phirasilp Subhapholsiri
President
-
3
Mr. Preecha Oonchitti
Director
-
4
Mr. Pongpanu Svetarundra
Director
Ministry of Finance’s representative
5
Mrs. Saowanee Suwannacheep
Director
The FIDF’s representative
6
Mr. Ranvir Dewan
Director
Newbridge’s representative
7
Mr. Daniel Ashton Carroll
Director
Newbridge’s representative
8
Mrs. Watanan Petersik
Director
Newbridge’s representative
9
Mr. Daniel Dak Bong Poon
Newbridge’s representative
10
Mr. Techapit Sangsingkeo
-
11
Mr. Dharin Divari
Director Chief of Audit Committee, Independent Director Audit Committee, Independent Director
12
Mr. Chatchawal Eimsiri
Audit Committee, Independent Director
-
-
Whereby Adjunct Professor Prasit Kowilaikul and Mr. Richard C. Blum act as Advisors to the BOD and Mr. Thaphop Kleesuwan as Secretary to the BOD.
-
Summary of BT’s Financial Status and Operating Performance
Revenue Structure -
Consolidated Financial Statements 2005 Million Baht
%
2006 Million Baht
%
Jan – Jun 2007 Million % Baht
Interest and dividend income Loan Interbank and money market items Investment
4,697.44
45.08
7,649.89
48.39
3,882.27
42.66
272.57
2.62
598.35
3.78
653.42
7.18
2,219.30
21.30
5,055.03
31.97
2,684.11
29.50
18
Translation
Hire purchase and financial contracts
2005 Million Baht 124.06
Yield maintenance income
1,525.96
14.64
-
-
-
-
Total interest and dividend income
8,839.33
84.83
13,795.77
87.26
7,523.79
82.68
268.58
2.58
313.76
1.98
600.58
6.60
- Acceptances, aval and guarantees
120.78
1.16
133.86
0.85
68.82
0.76
- Others
700.98
6.73
817.87
5.17
398.83
4.38
(28.35) 273.67
(0.27) 2.63
20.77 -
0.13 -
(40.89) 232.39
(0.45) 2.55
15.52 -
0.15 -
69.00 344.21
0.44 2.18
-
-
229.89
2.21
314.39
1.99
316.45
3.48
1,581.07
15.17
2,013.86
12.74
1,576.18
17.32
10,420.40
100.00
15,809.63
100.00
9,099.97
100.00
% 1.19
2006 Million Baht 492.50
% 3.12
Jan – Jun 2007 Million % Baht 303.99 3.34
Non-interest income 1. Gain on investment 2. Fees and charges
3. Gains (losses) on exchange rate 4. Gains on disposal of properties foreclosed 5. Gains on derivatives 6. Reversal of impairment loss on premises 7. Other income Total non-interest income Total income
-
Separate Financial Statements 2005 Million % Baht
2006 Million Baht
Jan – Jun 2007 Million % Baht
4,703.98
47.39
7,760.96
50.76
4,047.77
47.11
286.02
2.88
665.34
4.35
645.93
7.52
Investment
2,206.04
22.23
5,046.02
33.00
2,569.23
29.90
Yield maintenance income
1,528.55
15.40
-
-
-
-
Total interest and dividend income
8,724.59
87.90
13,472.32
88.11
7,262.93
84.53
253.43
2.55
599.33
3.92
226.51
2.64
- Acceptances, aval and guarantees
120.78
1.22
133.86
0.88
68.82
0.80
- Others
461.12
4.65
557.19
3.64
704.96
8.20
(12.83) 289.04
(0.13) 2.91
89.77 -
0.59 -
(40.89) 163.50
(0.48) 1.90
-
-
344.21
2.25
-
-
89.22
0.90
93.67
0.61
206.74
2.41
1,200.76
12.10
1,818.02
11.89
1,329.64
15.47
%
Interest and dividend income Loan Interbank and money market items
Non-interest income 1. Gain on investment 2. Fees and charges
3. Gains (losses) on exchange rate 4. Gains on disposal of properties foreclosed 5. Reversal of impairment loss on premises 6. Other income Total non-interest income
19
Translation 2005 Million % Baht Total income
9,925.35
100.00
2006 Million Baht 15,290.34
Jan – Jun 2007 Million % Baht
% 100.00
8,592.57
100.00
Summary of Financials and Financial Ratios Consolidated 31 Dec 06
31 Dec 05
30 Jun 07
31 Dec 05
Separate 31 Dec 06
30 Jun 07^
Financials Total assets
Million Baht
269,838
217,796
223,956
269,175
218,243
223,301
Short-term investment – net
Million Baht
8,107
1,861
20,282
7,904
1,563
20,016
Long-term investment – net * Investment in subsidiaries and associated companies – net Total investment – net
Million Baht Million Baht
56,019 203
77,393 153
72,725 197
55,976 1,298
74,467 1,585
70,010 1,667
Million Baht
64,329
79,407
93,204
65,178
77,615
91,693
Loans
Million Baht
140,167
102,980
103,504
137,449
102,664
101,033
Accrued interest receivables
Million Baht
4,475
791
797
4,376
428
526
Allowance for doubtful debts Revaluation allowance for debt restructuring
Million Baht Million Baht
(24,789) (196)
(7,564) (134)
(9,263) (109)
(22,425) (181)
(3,681) (119)
(5,404) (95)
Loans and accrued interest receivables – net
Million Baht
119,657
96,073
94,930
119,219
99,292
96,060
Investment
Loans and accrued interest receivables
Total liabilities
Million Baht
261,273
213,512
216,209
260,690
212,753
214,402
Deposits
Million Baht
194,447
181,219
166,000
194,573
181,319
166,379
Shareholders’ equity
Million Baht
8,565
4,284
7,747
8,485
5,491
8,899
Issued and paid-up capital
Million Baht
14,935
14,935
22,249
14,935
14,935
22,249
Share discount
Million Baht
(1,124)
(1,124)
(5,388)
(1,124)
(1,124)
(5,388)
Million Baht
6
6
6
6
6
6
Retained earnings (deficit) Appropriated – legal reserve Deficit
Million Baht
(2,849)
(8,524)
(8,487)
(2,849)
(8,524)
(8,528)
Total retained earnings (deficit)
Million Baht
(2,843)
(8,518)
(8,481)
(2,843)
(8,518)
(8,522)
Interest and dividend income
Million Baht
8,839
13,796
7,524
8,725
13,472
7,263
Total income
Million Baht
10,420
15,810
9,100
9,925
15,290
8,593
Net profit (loss)
Million Baht
611
(4,423)
44
611
(4,423)
3
Non-performing loans
Million Baht
7,188
8,178
11,484
7,011
3,913
7,227
Basic earnings (losses) per share
Baht
0.48
(3.32)
0.03
0.48
(2.96)
0.00
Book value per share **
Baht
6.96
3.09
3.66
6.96
3.68
4.00
Rate of interest income
%
4.58
6.76
4.39
4.60
2.92
4.31
Rate of interest expense
%
2,14
3.61
2.33
2.14
1.50
2.32
Interest rate spread
%
2.44
3.15
2.06
2.46
1.42
1.99
Return on assets (ROA)
%
0.24
(1.81)
0.04
0.24
(1.81)
0.00
Return on equity (ROE)
%
7.54
(68.85)
1.47
7.57
(63.30)
0.08
Net profit (loss) margin
%
5.87
(27.98)
0.97
6.16
(28.93)
0.03
Total capital adequacy ratio
%
-
-
-
8.56
5.95
9.17
Tier I capital to risk assets ratio
%
-
-
-
8.45
4.12
6.18
Major Financial Ratios
20
Translation ^
From 1 January 2007 onwards, BT’s accounting policy regarding recording of the investments in subsidiary and associated companies in the separate financials from equity method to cost method in order to comply with the Thai Accounting Standards No. 44 and 45 (revised). BT’s separate financial statements for the period ended 31 December 2006 were revised to be used in the comparison as if the Company has continued to adopt cost method in recording the investments in subsidiary and associated companies. * As at 30 June 2007, BT had foreign currency denominated debt investments which have been classified as the held-tomaturity investments totaling approximately USD 1,438 million or equivalent to 49,652 million Baht, consisting of structured notes and collateralized debt obligation (CDO) of 38,255 million Baht and 11,397 million Baht, respectively. Due to subprime crisis in the US which may affect the decline in value of such investments, BT has, accordingly, made a provisioning for investment impairment in the amount of 276 million Baht. ** Calculated from BT’s shareholders’ equity divided by the number of BT’s total issued shares, deducted with the number of shares held by BT and/or subsidiaries.
Overview of the past operating performance Main income of BT and subsidiaries consisted of 2 parts, i.e. interest and dividend income, which accounted for more than 80% of total income, and non-interest income. During the year 2005 – 2006, interest and dividend income of BT and subsidiaries stood at 8,839 million Baht and 13,796 million Baht, respectively, resulting in a growth of 56% from year 2005 to 2006. Majority of non-interest income was derived from fees and charges, e.g. acceptances, aval and guarantees. BT and subsidiaries’ non-interest income for the year 2005 – 2006 amounted to 1,581 million Baht and 2,014 million Baht, respectively. For the first half of 2007, interest and dividend income of BT and subsidiaries was 7,524 million Baht, which accounted for 83% of total revenues. The main reason of increase in interest and dividend income was BT’s expansion of loan extension, the increase in retail banking customers in particular, and incremental transactions between BT and other banks and in money market. Non-interest income of BT stood at 1,576 million Baht, accounting for 17% of total revenues. Majority of non-interest income was derived from gain from investment and fees and charges. The increase in non-interest income was mainly due to gain from sale of investment. The expansion of loans, investment in debt instrument, hire purchase and financial lease agreements as well as various service provisions increased in year 2006. As a result, BT and subsidiaries incurred profit from normal operation in the amount of 1,206 million Baht (before losses from non-compensated yield maintenance income of 1,691 million Baht, losses from Covered Asset Pool (“CAP”) Agreement settlement of 2,038 million Baht and provisioning transaction pursuant to the modified criteria stipulated by the BOT in December 20067 of 1,900 million Baht), or basic earnings per share of 0.90 Baht compared with the operating performance for the year 2005 which earned a net profit of 611 million Baht or basic earnings per share of 0.48 Baht. However, in year 2006, BT and subsidiaries incurred net losses of 4,423 million Baht due to realization of losses from non-compensated yield maintenance income of 1,691 million Baht
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In December 2006, BT revised its guidelines on determining allowance for doubtful accounts by applying the value of collateral to be deducted against the loan balance when setting provisions for non-performing loans in accordance with the guideline under the Notification No. 1974/2549 and No. 1979/2549. Under the new guidelines, BT has to make provision at a rate of 100% of the debt balance remaining after deducting the present value of expected future cash flows from debt collection or from collateral disposal, based on the use of the stipulated discount rate and the time needed to dispose of collateral in accordance with the BOT’s guideline.
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Translation arisen from yield maintenance income on CAP loans transferred to Thai Asset Management Corporation (“TAMC”). As at the date BT was informed by the FIDF, the balance of yield maintenance income receivable stood at 8,675 million Baht while the amount of yield maintenance income received from the FIDF was equal to 6,984 million Baht which was in accordance with the principles approved by the Cabinet while the non-compensated amount of 1,691 million Baht occurred because the principles approved by the Cabinet for determining yield maintenance income differed from the original principles of the agreement. BT, therefore, recognized such difference as loss in the income statements for the year 2006. Apart from losses from non-compensated yield maintenance income, BT also realized losses from CAP Agreement settlement in the amount of 2,038 million Baht which arose from the compensation of losses incurred from management of non-performing assets under the CAP agreement from the FIDF totaling 92,051 million Baht. The FIDF made partial payment of 80,895 million Baht of such loss compensation in January and February 2006, leaving a balance of 11,156 million Baht. As at 25 April 2007, the FIDF has completely made a payment 11,156 million Baht to BT. For the 6 months period ended 30 June 2007, BT incurred profit before extraordinary items in the amount of 1,642 million Baht, which was due to the increase in interest and dividend income as a result of the expansion of loans and investment. The increase in non-interest income was also attributable to a reversal of provisioning for tax, properties foreclosed, CAP, excess accrued expenses and fees from management of non-performing assets under the CAP agreement as these transactions were finalized and therefore the provisioning is no longer required. However, BT has made 2 provisioning transactions in the amount of 1,640 million Baht as follows: 1) As at 30 June 2007, President Agri Trading Group, a large rice exporter of Thailand, had total debt outstanding of 1,760 million Baht, consisting of cash credit of 1,388 million Baht and non-cash credit (L/G) of 372 million Baht. Such debtor failed to repay since June 2007 and BT is under debt collection process. To protect the further risk of loss which may incur from nonrepayment, BT has set aside provision for this group of debtors at 100% of net cash loan balances, after the expected cash flows from collateral disposal, in the amount of 1,364 million Baht. 2) As at 30 June 2007, BT had foreign currency denominated debt investments which have been classified as the held-to-maturity investments totaling approximately 49,652 million Baht, comprising 38,255 million Baht of structure notes and 11,397 million Baht of CDO’s. Due to the possibility of effect of subprime mortgage crisis in the US on CDO’s investment value, BT made a provision in the amount of USD 8 million or approximately 276 million Baht, accounting for 2.42% of investment value in CDO’s. In calculating the amount of such provisioning, BT adopted principle and guideline of Basel II, based on Advanced Internal Rating-Based Approach (AIRB) as well as the guideline of Dynamic Provisioning. As a result of such provision, BT’s net profit stood at 3 million Baht while net profit of BT and subsidiaries stood at 44 million Baht.
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Translation
Return on Equity BT did not make any dividend payment to the shareholders for the year 2006 because BT and subsidiaries still had retained deficits in the amount of 8,524 million Baht. Although BT earned profit from normal operation in the first 6 months of 2007, it needed to make additional provision of 1,640 million Baht. BT and subsidiaries, therefore, still had retained deficits as at 30 June 2007 in the amount of 8,487 million Baht. However, the return on equity of BT increased from (68.85) % in 2006 to 1.47%. Financial Status Total assets of BT and subsidiaries as at 30 June 2007 increased by 3% from 217,796 million Baht as at the end of year 2006 to 223,956 million Baht. Such an increase resulted from an increment of short-term investments under held for trading securities and available-for-sales securities classification, the incremental investment in government and state enterprises securities in particular. BT’s loans were mainly extended to manufacturing and commerce industry, followed by public utility and services, real estate development and construction and personal loans. BT continued to adjust the proportion of lending extension to spread towards various businesses without clustering within any particular business. It also distributed the loans to corporate, medium, small and retail customers while the focus remained with the customers in manufacturing industry of key economic sectors. As at 30 June 2007, net loans of BT and subsidiaries declined from 96,073 million Baht at the end of year 2006 to 94,930 million Baht as a result of loan provisioning for President Agri Trading Group. Total liabilities under the consolidated financial statements as at 30 June 2007 increased by 1% from 213,512 million Baht as at 31 December 2006 to 216,209 million Baht. Such an increase mainly resulted from the increase in borrowings due to BT’s issuance of subordinated debentures and notes at the beginning of year 2007. Shareholders’ equity under the consolidated financial statements as at 30 June 2007 increased by 81% from 4,284 million Baht from the end of year 2006 to 7,747 million Baht. Such an increase was mainly due to BT’s issuance of increased shares to Newbridge and co-investors in the amount of 3,050 million Baht and the decrease in retained deficits of 37 million Baht. Non-Performing Loans Non-performing loans of BT and subsidiaries stood at 8,178 million Baht and 11,484 million Baht as at the end of year 2006 and the end of the 2nd quarter of 2007, respectively. As at the end of year 2006 and the end of the 2nd quarter of 2007, non-performing loans of BT under separate financial statements amounted to 3,913 million Baht and 7,227 million Baht, respectively. As at 30 June 2007, the proportion of BT and subsidiaries’ non-performing loans increased from 8% as at the end of year 2006 to 11% of loans. Non-performing loans of BT as at 30 June 2007 increased from 4% of loan as at the end of year 2006 to 7% of loans. Total Capital Adequacy Ratio As at 31 December 2006, BT’s total capital adequacy ratio was equal to 5.95%. Such ratio was less than the level required by law as BT needed to recognize into the retained deficits as at the end of 2006 losses incurred from its receipt of yield
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Translation maintenance income according to the CAP Agreement in the amount less than the amount previously recorded by 1,691 million Baht, losses from the CAP Agreement settlement with the FIDF of 2,213 million Baht, a significant increase in the allowance for doubtful debts mainly due to the modified criteria for loan loss provisioning stipulated by the BOT in December 2006 whereas at the end of 2006 BT had sufficiently increased its provisioning for sub-standard debts at that time, and recognition of the Warrants buyback transaction from the FIDF of 1,146 million Baht. However, on 25 April 2007, BT obtained proceeds from capital increase in the amount of 3,050 million Baht from the Group of New Investors. As a result, its total capital adequacy ratio was in compliance with the level required by law. As at 30 June 2007, BT’s total capital adequacy ratio stood at 9.17%. Financial Institutions Development Fund The FIDF was established on 27 November 1985 through the enactment of an Emergency Decree regulating the Affairs of the Bank of Thailand. The objective of the FIDF is to implement financial support measures for rehabilitation and development of the financial institutions to maintain stability in the system, especially upon the emergence of severe crisis in the financial institution system under policy of the BOT and the government. It also intends to provide damage insurance and financial assistance as deemed appropriate to financial institution depositors as a result of severe crisis incurred to the financial institutions, to manage debts and assets, to issue the FIDF bond, to supervise the administration concerning management policy on assets and financial institutions in which the FIDF is a shareholder, to pursue debt collection, to enforce debt repayment and collateral owed to the FIDF by external persons as well as studying and preparing for the establishment of the Deposit Insurance Agency. The FIDF is both a part of and a separated juristic entity from the BOT. Management of the FIDF is considered one of the BOT’s sectors. Fund Management Department carries on the operations under the framework of the Fund Management Committee. The FIDF keeps its own accounting records and budget. The Office of the Auditor General audits the FIDF and reports the audit result to the Finance Minister and informs the BOT. The FIDF is managed by the Fund Management Committee, comprising the Governor of BOT as Chairman, the Permanent Secretary of Finance Ministry as Deputy Chairman, and at least 5 but not more than 9 other committee members appointed by the Finance Minister. Recently, there are 9 committee members comprising 4 BOT representatives, 3 Ministry of Finance representatives, 1 from the Office of the Attorney General and 1 from the Office of the Council of State. The Assistant Governor of Fund Management & Corporate Debt Restructuring Group of the BOT acts as secretary of the FIDF's committee and manager of the FIDF by position. -
Fund Management Committee
Name 1. Mrs. Tarisa 2. Mr. Suparut
Watanagase Kawatkul
3.
Vithespongse
Mr. Sun
Present Position Governor, BOT Permanent Secretary, Ministry of Finance Deputy Director, Public Debt
Position in the Committee Chairman Deputy Chairman Committee member
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Translation Name 4. 5.
Lt. Nophadol Mr. Prasarn
Bhandhugravi Huttagum
6. 7. 8.
Mr. Bandid Mr. Sorasit Mr. Phairoj
Nijathaworn Soontornkes Hengsakul
9.
Mrs. Sukanya
Chantrapannik
Present Position Management Office Deputy Director, Fiscal Policy Office Senior Public Prosecutor, Office of the Attorney General Deputy Governor, BOT Senior Director, BOT Assistant Governor, BOT
Director of the Bureau of Financial System Policy, Fiscal Policy Office Term of the Committee member lasts for 3 years, effective from 19 February 2007.
-
Position in the Committee Committee member Committee member Committee member Committee member Committee member, Secretary Assistant Secretary
Financial Statements As at 30 September (Unit: Million Baht) Assets
Current asset Deposits with the BOT Deposits with commercial banks Advance payment Other current assets Total current assets Investment in associated companies Long-term investment Claims on banks & financial institutions due to financial assistance program Notes receivable Properties foreclosed – net Premises and equipment – net Total assets Liabilities and Capital Funds Current liabilities Advance from the BOT Accrued expenses Accounts payable – financial institutions Other current liabilities Total current liabilities Bonds sold with Repurchase Agreement FIDF bonds guaranteed by the Ministry of Finance Liabilities under Note Exchange Program Total liabilities Capital funds Contributions from financial institutions Contributions from the BOT Contributions from the government Payment under Loan Management Agreement from BT Surplus (deficit) in investment value Retained earnings (deficits) Profit (loss) Total capital funds Total liabilities and capital funds
2004
2005
2006
465.64 2.15 17,180.19 288.18 17,936.16 93,724.62 8,896.11
282.09 0.83 0.29 181.21 464.42 87,138.00 7,098.55
367.49 5.41 15,277.85 112.8 15,763.55 91,934.45 6,741.85
125,742.92 22,000.00 3,446.19 6.34 271,752.34
168,432.46 31,205.87 2,270.24 6.14 296,615.68
187,329.43 8,807.73 1,760.55 4.19 312,341.75
12.89 89,695.66 3,023.34 2,026.83 94,758.72 264,086.00 40,000.00 68.94 398,913.66
10.92 100,362.01 3,023.34 1,017.69 104,413.96 292,135.00 40,000.00 62.56 436,611.52
10.75 19,539.94 930.58 20,481.27 252,988.00 45.9 273,515.17
171,690.91 3,900.00 36,680.66 1,610.88 (75.13) (356,992.39) 16,023.75 (127,161.32) 271,752.34
194,906.33 3,900.00 17,844.93 1,616.08 (65.82) (340,968.63) (17,228.73) (139,995.84) 296,615.68
218,712.56 3,900.00 174,249.17 1,873.58 (11.44) (358,197.36) (1,699.94) (38,826.57) 312,341.75
Source: www.bot.or.th
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Translation
Newbridge Sukhothai Netherlands B.V.8 Newbridge was established in the Netherlands to operate in (1) financial, management, advisory and other service provisions to other companies and juristic persons (2) various investment structures (3) the acquisition and divestment of rights in intellectual and commercial property (4) the provision of guarantee against the obligation of other companies or juristic persons, whether being related companies or the companies or juristic persons of the third party, and (5) other businesses related to the above business operation. Newbridge’s registered and paid-up capital stood at €18,000, divided into 180 shares at par value of €100 per share, 100% of which being held by Coöperatieve Newbridge Sukhothai U.A., a subsidiary whose shares are wholly owned, directly and indirectly, by Newbridge Asia IV, L.P. Newbridge Asia IV, L.P. and TPG Sukhothai, Ltd. (whose shares are wholly owned by Newbridge Asia IV, L.P.) hold 99% and 1% shares, respectively, in Coöperatieve Newbridge Sukhothai U.A. TPG Sukhothai, Ltd. was registered in Cayman Islands. Newbridge Asia IV, L.P. has a total commitment of USD 1,550 million. However, the proportion of called commitment cannot be disclosed due to a restriction bound by the confidentiality agreement. Newbridge Asia IV, L.P., or commonly known under commercial name for its investment in Asia region as TPG Newbridge, is a leading global investment firm with headquarter located in the US. Over USD 30,000 million of total capital is under its management to be used in the investment through a variety of vehicles worldwide. TPG Newbridge’s investment philosophy has been to create value to the business through deep industry experiences in a broad range of businesses of a group of experts in which TPG Newbridge possesses a large global network. These experts will work closely with the management team in such business to make quick and efficient investment decisions. TPG Newbridge’s investment would help transfer knowledge and technology from TPG Newbridge’s experts to such business. In this investment in BT, TPG Newbridge will bring in experts with in-depth knowledge and experience in world class banking management to participate in the management. These experts have long been in financial and banking industry, and used to serve as high-level executives in the leading banks/ financial institutions. Examples of TPG Newbridge’s investment in financial and banking business in Asia region are as follows: -
Korea First Bank is the 8th largest bank in South Korea. TPG Newbridge group made an investment in such bank in year 1999 as a 51% shareholder. The remaining 49% shares were held by South Korean government. Shenzhen Development Bank is one of the nationwide banks in China. Taishin Financial Holdings is located in Taiwan. TPG Newbridge group made an investment in such bank in year 2006 with total investment of approximately USD 844 million. Representative from TPG Newbridge group also served as member of the bank’s Board of Directors.
8
Changed its name from Centerpoint Media Investment Netherlands B.V. to Newbridge Sukhothai Netherlands B.V. on 9 May 2007.
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Translation Apart from the financial and banking industry, samples of investment of TPG Newbridge group in other industries are such as: -
Lenovo, China’s largest PC manufacturer and no. 3 globally. Raffles, provider of hotel and resort management services under the Raffles and SwissÔtel brands in more than 40 hotels and resorts worldwide. Burger King, the 2nd largest hamburger franchise globally. Beringer Wine Estates, a major premium wine producer in California, USA. Seagate Technology, a leading global disk drive manufacturer with headquarter in the US.
Newbridge Asia Advisors IV, Inc., with total issued shares of USD 2, is fully authorized as investment manager to manage and operate the investment of Newbridge Asia IV, L.P. through Newbridge Asia GenPar IV, L.P. As a result, management and operation decision of any investment of Newbridge is at discretion of the Board of Directors of Newbridge Asia Advisors IV, Inc., which comprises Mr. David Bonderman and Mr. James G. Coulter. Due to a restriction bound by the confidentiality agreement, the information regarding shareholders of Newbridge Asia Advisors IV, Inc. cannot be disclosed. The Board of Directors No. 1. 2. 3. 4. 5. 6.
Name ATC Management B.V.* Mr. Arnout Stal Mr. Ronald Arendsen Mr. David Bonderman Mr. James Coulter Mr. John Edward Viola
Position Director Director Director Director Director Director
* The Board of Directors of ATC Management B.V. consists of Mr. Johannes Hendricus Scholts, Mr. Guido Franciscus Xaverius Maria Nieuwenhuizen, Mr. Johan Lont and Mr. Andreas Gerardus Maria Nagelmaker.
3.
Reasonableness and Benefit of the Connected Transaction to BT
3.1 Objective of the Transaction The objective of the allotment of the remaining shares in which some of the existing shareholders of BT may not exercise their rights in the rights offering through private placement offering to specific investors, which may include the FIDF, Newbridge, Blum, MSOF and/or some of the existing shareholders which are not connected persons is to ensure that the amount of proceeds of approximately 7.68 billion Baht can be raised within planned timeframe to increase the registered capital from 8,343 million Baht to 25,030 million Baht within December 2007.
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Translation
3.2 Necessity of the Transaction Whereas the Extraordinary General Meeting of the Shareholders no. 1/2007, held on 30 May 2007, approved the allocation of 2,224.90 million of newly issued shares to the existing shareholders (Rights Offering) at the ratio of 1 existing share to 1 new share at the price of 3.46 Baht per share, and to some existing shareholders in a private placement offering at the price of 3.48 Baht per share. Subsequently, BT did not offer the shares for sale according to the approval as prior to registering a capital increase of 2,224.90 million shares, it was obliged to register the capital reduction according to the resolution from the Annual General Meeting of the Shareholders on 24 April 2007. In this regard, under the Public Limited Companies Act, BT is required to submit any resolution regarding capital reduction to all creditors of the Company and to allow said creditors to object to the capital reduction within 2 months from the date of receipt of the said resolution. The last date for sending notice to the creditors was 8 May 2007. Therefore, the last date for submitting objections was 9 July 2007. After such expiry date, the Company had registered the capital reduction via par value reduction on 10 July 2007, registered the capital reduction via cancellation of all preferred shares issued to support the Warrants on 12 July 2007, and registered the capital increase on 13 July 2007. After the completion of the aforementioned process, the market situation turned unfavorable to the offering of shares at the price approved by the shareholders’ meeting. BT, therefore, deemed that if the offering was taken during that period, such capital increase may affect the funding to be used for its business operation as proposed for approval from the shareholders’ meeting. Accordingly, the Board of Directors’ meeting of BT resolved to propose to the shareholders’ meeting for approval on the cancellation of the resolutions relating to the above capital increase and on the allocation and offering of 4,449.80 million of newly issued shares to the existing shareholders in proportion to each shareholding (Rights Offering) at the ratio of 1 existing share to 2 new shares at the offering price of 1.73 Baht per share (such an offering price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price shall not be higher than the determined offering price of the rights offering and not be lower than 1.00 Baht per share). The remaining shares after the rights offering will be offered to Private Placement Investors. It is necessary for BT to allot the remaining shares in which some of the existing shareholders do not exercise their subscription rights through private placement offering to specific investors, which may include the FIDF, Newbridge, Blum, MSOF and/or some existing shareholders which are not connected persons, to ensure that BT will be able to obtain proceeds from fund raising in the amount as planned within the determined timeframe in order that level of BT’s Tier I capital and total capital will be in compliance with the required criteria and be able to support its business expansion. In spite of the inclusion of capital increase to the Group of New Investors on 25 April 2007, as at 30 June 2007, BT’s Tier I capital to risk assets ratio equals 6.18% while total capital adequacy ratio equals 9.17% which are modestly higher than the required criteria of 4.5%
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Translation and 8.5%, respectively. As such, BT still needs to obtain additional capital in order that the business expansion can be proceeded according to the plan. 3.3 Benefit and Weakness of the Entering into the Transaction to BT 3.3.1
Benefit to BT from the Entering into the Transaction BT’s election to allot the remaining shares in which some of the existing shareholders do not exercise their subscription rights through private placement offering to specific investors which may include the FIDF, Newbridge, Blum, MSOF and/or some of the existing shareholders who are not connected persons, whereas the FIDF and Newbridge are connected persons, instead of canceling such remaining shares or continuing to allot the remaining shares to the existing shareholders will provide benefits to BT as follows: (1) Help ensure that proceeds to be obtained by BT from fund raising will be in the amount as planned Should there be a large amount of shares remaining from unsubscription of some of the existing shareholders and BT does not use such shares for further allotment, the amount of proceeds to be obtained from this capital increase will be much lower than the expected amount which may, accordingly, affect BT’s level of Tier I capital and business expansion plan to enable BT to be competitive with other domestic and overseas bank as planned.
3.3.2
Weakness to BT from the Entering into the Transaction (1) Weakness in term of the earnings per share and rate of return on equity In the offering of increased capital to the existing shareholders, if all of the existing shareholders exercise their subscription rights according to their entitlement, or BT can allot all of the remaining shares not subscribed by some of the existing shareholders through private placement offering, the earnings per share and rate of return on equity will decline immediately. BT’s earning per share will decrease from 0.0199 Baht per share9 to 0.0066 Baht per share10 and the rate of return on equity will decline from 1.47%11 to 0.90%12. However, should some shareholders not exercise their subscription rights until there are a number of shares remaining and BT first proceed to decrease such capital before further applying for capital increase afterwards when BT needs
9
Calculated from net profit for the 6 months period ended 30 June 2007 divided by the number of shares of 2,224.90 million shares. 10 Calculated from net profit for the 6 months period ended 30 June 2007 divided by the number of shares of 6,674.70 million shares. 11 Calculated from the annualized estimation, based on net profit for the 6 months period ended 30 June 2007, divided by average equity as at 31 December 2006 and 30 June 2007. 12 Calculated from the annualized estimation, based on net profit for the 6 months period ended 30 June 2007, divided by average equity as at 31 December 2006 and 30 June 2007, as adjusted by the capital increase of 4,449.80 million shares at the price of 1.73 Baht per share.
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Translation additional funding, i.e. gradual increase of BT’s capital according to its business expansion plan, the effect to the earnings per share and rate of return on equity will gradually incur. However, gradual increase of capital will incur additional cost and need to pass various procedures which may take time to apply for an approval and, as a result, may be too late for BT’s lending business expansion. (2) Weakness in term of the controlling power in the future In the offering of increased shares to the existing shareholders, if some shareholders do not exercise their subscription rights until there are a number of shares remaining and such shares are allotted to the FIDF and Newbridge, the shareholding proportion of the FIDF and Newbridge will increase from 32.88% and 24.99% to 42.43% and 34.54%, respectively (under the assumption that all other shareholders, apart from the Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). As a result, the FIDF and the Group of New Investors, comprising Newbridge, Blum and MSOF, will become the two largest groups of shareholders of BT with the combined shareholding percentage of 84.85%. As such, it is highly likely that the FIDF and the Group of New Investors together will have a controlling power in critical agenda which require three fourth voting approval from the shareholders’ meeting. However, the two groups of major shareholders will have equal percentage of shareholding and, therefore, will be able to balance the power of each other in the shareholders’ meeting, thereby being beneficial to the minority shareholders. 3.4 Benefit and Weakness of the Entering into the Transaction with the FIDF and Newbridge Compared with the Entering into the Transaction with External Person 3.4.1
Benefit from the Assignment of Rights to the FIDF and Newbridge to Subscribe for the Remaining Shares Not Subscribed by Some Shareholders (1) BT will continue to gain support from the FIDF and Newbridge BT’s offering of the remaining increased shares not subscribed by the existing shareholders to the FIDF and Newbridge will maintain the FIDF and Newbridge’s status as the major shareholders of BT which will help BT continue to gain full support from the FIDF and Newbridge in case where the Company may need financial support for business expansion in the future while such support from the FIDF and Newbridge will not have an impact on the operating approach of BT. Additionally, Newbridge’s experience and expertise in a variety of investment and financial services business both in Asia and other regions around the world should allow them to assign resources to jointly plan BT’s strategies and operation plan which would help enhance BT’s competitive edge in the future.
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Translation (2) Mitigate the risk of shares offering not fully subscribed If there are remaining shares not subscribed by some of the existing shareholders, the allotment of such remaining shares to the FIDF and Newbridge is considered the allotment to trustworthy investors with adequate capability to subscribe for such shares of BT. Therefore, BT can be confident that proceeds to be obtained from this capital increase will be in the amount as planned. (3) Balance of the power between two groups of major shareholders The offering of the remaining increased shares not subscribed by the existing shareholders to the FIDF in the equal proportion to Newbridge will maintain even shareholdings between the FIDF and the Group of New Investors which will continue to help balancing the power between two groups of the major shareholders. After capital increase, the maximum shareholding percentage of the FIDF and Newbridge will increase from 32.88% and 24.99%, respectively, to 42.43% and 34.54%, respectively (under the assumption that all other shareholders, apart from the Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are equally offered to the FIDF and Newbridge). 3.4.2
Weakness from the Assignment of Rights to the FIDF and Newbridge to Subscribe for the Remaining Shares Not Subscribed by Some Shareholders (1) Weakness in term of the shareholding proportion of other existing shareholders not allotted with the shares The existing shareholders who wish to subscribe for the shares in excess of their rights according to their respective shareholding percentage but are not allotted with such excess shares as BT allots the said shares to some investors through private placement offering, which may include the FIDF and Newbridge, will be affected in term of the shareholding proportion which does not increase in the same proportion as the FIDF and Newbridge’s. That is, the shareholding percentage of other existing shareholders not allotted with the shares in excess of their rights will be the same as that before this capital increase while the FIDF and Newbridge’s shareholding percentage in BT will increase according to the amount of excess shares allotted to the FIDF and Newbridge. (2) Weakness in term of an acquisition cost of securities of other existing shareholders not allotted with the shares In case BT allots the remaining shares not subscribed by some shareholders to the Private Placement Investors at the price of 1.75 Baht per share, comparing such price with the market price of BT’s shares during the period before the BOD resolved that it deemed appropriate to propose to the shareholders for approval of the new capital increase, this price is less than BT’s weighted
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Translation average closing price during the past 7 business days from 2 – 10 October 2007 (which equals 3.107 Baht per share) by 1.36 Baht per share, or 43.68% lower than the market price during such period. Therefore, considering the period of share offering in which the share market price may not differ from current level of share price, the offering price may continue to be lower than the share market price during such period. As a result, the cost of securities acquisition of some shareholders who wish to subscribe for the shares in excess of their rights according to their respective shareholding percentage but do not obtain the rights to subscribe for the excess shares at the price below the market and need to acquire BT’s shares in the market by themselves may be higher than that of the Private Placement Investors allotted with the excess shares which may include the FIDF and Newbridge. However, upon the offering of a large number of shares to the existing shareholders according to their respective shareholding percentage (Rights Offering) at the price lower than the market price, normally the market price should adjust downward according to the lower offering price. As a result, the market price as at the offering date of the increased shares should not significantly differ from the offering price. 3.4.3
Weakness from the Assignment of Rights to Newbridge to Subscribe for the Remaining Shares Not Subscribed by Some Shareholders (1) The risk that there may remain unsubscribed shares from this private placement offering if Newbridge is not granted a waiver from the Ministry of Finance to hold more than 24.99% of BT’s shares BT is in the process of applying for the waiver from the Minister of Finance through the BOT to allow Newbridge to hold more than 24.99% of BT’s shares. There is a possibility that Newbridge may not obtain such a waiver approval from the Ministry of Finance to hold more than 24.99% of BT’s shares. Therefore, Newbridge will not be able to subscribe for the remaining shares not subscribed by some shareholders according to the allotment approval from BT’s BOD. As such, the proceeds to be obtained by BT from fund raising will not be in the amount as planned, unless BT will further offer such remaining shares to other investors.
4.
Fairness of the Price and Condition of the Transaction
Reasonableness of the Price
The Financial Advisor has adopted the following share valuation approaches to consider the appropriateness of the offering price: 4.1 4.2 4.3 4.4 4.5
Book Value Approach Adjusted Book Value Approach Market Value Approach Market Comparable Approach Dividend Discount Model Approach (DDM)
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Translation
4.1 Book Value Approach The book value approach presents the value of BT as shown in the account at a specific point of time. In this case, the valuation is based on book value of BT from the financial statements as at 30 September 2007, unreviewed by the auditor. Calculation of BT’s book value can be illustrated below:
Issued and paid-up capital Ordinary share discount Revaluation surplus on assets Revaluation deficit on investments Retained earnings (deficits) Appropriated – legal reserve Retained deficits BT’s ordinary shares held by subsidiaries Equity attributable to BT’s shareholders No. of total shares (million shares) 3 Book value per share (Baht per share)
Amount (Million Baht) As at 30 Jun 07 1 As at 30 Sep 07 2 22,249.00 8,343.38 (5,387.96) 777.19 772.44 (213.93) (310.51) 6.05 (8,486.98) (1,261.47) 7,681.90 2,100.31 3.66
6.05 (2,795.40) (1,261.47) 4,754.49 2,100.31 2.26
1
Audited by the auditor Unreviewed by the auditor 3 The number of total issued and paid-up ordinary shares of BT of 2,224.90 million shares deducted by the number of total ordinary shares of BT held by subsidiaries of 124.59 million shares. Note: - In July 2007, BT registered the capital reduction with the Ministry of Commerce via par value reduction from 10 Baht per share to 3.75 Baht per share. Therefore, the registered capital decreased from 61,402.50 million Baht to 8,343.38 million Baht (consisting of paid-up ordinary shares of 2,224.90 million shares at the par value of 3.75 Baht per share). Such capital reduction resulted in an elimination of ordinary share discount and retained deficits. - According to BT’s operating results for the 3-month period from July – September 2007, its net income before extraordinary items stood at 430 million Baht and net loss at 3,054 million Baht, mainly as a result of the additional provisions of 3,484 million Baht, which comprised: 1) Allowance for impairment of investment in overseas debt instrument of CDO’s in the amount of 2,323 million Baht 2) Allowance for doubtful debts in the amount of 1,161 million Baht 2
Based on book value approach, value of BT is 2.26 Baht per share based on the value calculated from the financial statement as at 30 September 2007, prior to a review by the auditor. Such information was obtained from BT’s latest financial statements disclosed to the SET, taken into account the operating results in the 3rd quarter of 2007 which had material changes, including the effects of revaluation of investment in CDO’s, additional allowance for doubtful debts and par value reduction to eliminate retained deficits and share discount.
33
Translation 4.2 Adjusted Book Value Approach BT’s book value as shown in the financial statements as at 30 September 2007 was used in the calculation under adjusted book value approach. This is because such information was obtained from BT’s latest financial statements submitted to the SET, taken into account the operating results in the 3rd quarter of 2007 which had material changes, including the effects of revaluation of investment in CDO’s, additional allowance for doubtful debts and par value reduction to eliminate retained deficits and share discount. The book value was then adjusted with commitments and contingent liabilities, divided by the number of total issued and paid-up shares of BT. The Financial Advisor has considered major items in BT’s financial statements, e.g. loans and accrued interest receivables, provisioning for doubtful debts, investment, deposits, etc. The Financial Advisor has adjusted the contingent liabilities which may arise from litigation against BT, as defendant. At present the litigation has not yet been finalized and is currently in the process of appealing the decisions. The Financial Advisor views that loss from indemnification may incur to BT as the Civil Court had passed a verdict in favor of the plaintiffs with sums claimed against BT, as the direct defendant and the co-defendant with others, of 84 million Baht and 48 million Baht, respectively. Equity attributable to BT’s shareholders Adjusted by Estimated loss from contingent liabilities which may arise from the litigation filed against BT - as the direct defendant - as the co-defendant with others Total shareholders’ equity after adjustment Number of BT’s total shares ^ (million shares) Adjusted book value per share (Baht per share)
Amount (Million Baht) 4,754.49
(84.32) (47.98) 4,622.19 2,100.31 2.20
^ The number of total issued and paid-up ordinary shares of BT of 2,224.90 million shares deducted by the number of BT’s total ordinary shares held by subsidiaries of 124.59 million shares. Note : The above adjustment does not include any additional effect which may arise from the possibility of a change in the BOT’s regulation relating to investments in structured notes after 30 September 2007. Normally, the transaction to be used in adjusting the book value should be able to be assessed with reasonable certainty of the expected amount to be incurred in order to adjust with the business value according to the operating results at a specific of time. As there remains uncertainty of the change in the above regulation, BT could not estimate the effect with reasonable certainty at present.
Based on the adjusted book value approach, the value of BT equals 2.20 Baht per share. 4.3 Market Value Approach Market value approach is calculated based on the weighted average historical price of BT’s ordinary shares traded on the SET. In order that value calculated from market value approach reflects the share prices close to the period of the offering price determination, the Financial Advisor uses the weighted average price of BT’s shares during the period of 7, 15 and 30 business days prior to the date the Board of Directors approved the offering of the remaining shares after rights offering to the Private
34
Translation Placement Investors on 11 October 2007. Value of the shares deriving from the market value approach can be summarized as follows:
Weighted average price (Baht per share) Average trading volume per day (thousand shares)
7 Business Days (2 Oct 07 – 10 Oct 07) 3.12
15 Business Days (20 Sep 07 – 10 Oct 07) 3.08
1,721.87
1,708.11
30 Business Days (30 Aug 07 – 10 Oct 07) 3.03 1,211.50
Source: SETSMART Note: Should the weighted average close price during the period of 7, 15 and 30 business days be used in the calculation, share price would be equal to 3.11 Baht per share, 3.07 Baht per share and 3.02 Baht per share, respectively.
Based on market value approach, the value of BT’s share ranges from 3.03 – 3.12 Baht per share. 4.4 Market Comparable Approach Market comparable approach appraises BT’s share value by comparing the financial ratios of the banks with total assets as at 30 June 2007 of greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET with the ratios of BT. Approaches used in evaluating share value under market comparable approach are price to book value approach and price to earning ratio approach. 4.4.1
Price to Book Value Approach (P/BV) Price to book value approach multiplies the book value per share of BT as at 30 June 2007 by the average P/BV ratio of the banks with total assets as at 30 June 2007 of greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET. A summary of the information regarding the comparison of the size of commercial banks listed on the SET is provided below:
No.
Bank
Total
Total
Loans and Accrued
Total
Assets
Liabilities
Interest Receivables (Net)
Deposits
(Million Baht)
(Million Baht)
(Million Baht)
(Million Baht)
1
Bangkok Bank plc. ("BBL")
1,559,859
1,400,162
919,833
1,287,662
2
Krung Thai Bank plc. ("KTB")
1,259,711
1,165,962
884,776
1,030,527
3
Siam Commercial Bank plc. ("SCB")
1,093,184
990,517
737,940
787,505
4
Kasikornbank plc. ("KBANK")
962,632
867,857
671,823
764,148
5
Bank of Ayudhya plc. ("BAY")
646,770
582,345
423,114
526,202
6
TMB Bank plc. ("TMB")
646,362
615,501
478,016
492,418
7
Siam City Bank plc. ("SCIB")
423,584
386,186
229,458
358,138
8
Thanachart Bank plc. ("TBANK") *
279,940
264,475
208,630
204,937
9
BankThai plc. ("BT")
223,956
216,209
94,930
166,000
10
Standard Chartered Bank plc. ("SCBT") **
215,823
196,005
79,746
83,251
11
Tisco Bank plc. ("TISCO")
104,047
92,341
79,153
43,596
12
Kiatnakin Bank plc. ("KK")
78,524
60,631
53,218
36,813
13
ACL Bank plc. ("ACL")
50,743
38,606
29,842
35,181
Note: Information as at 30 June 2007
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Translation * TBANK is not used in the comparison for the calculation of the average for the assessment of BT’s share value as its free float was merely 0.64%13 and the average trading volume during the 30 business day period from 30 August 2007 – 10 October 2007 was only approximately 14,790 shares per day. Moreover, loan structure of TBANK puts a focus on the hire purchase loan with the proportion exceeding 50% of total loan portfolios. Such a structure differs from the loan structure of commercial banks chosen by the Financial Advisor for comparison. ** SCBT is not used in the comparison for the calculation of the average for the assessment of BT’s share value as there has been no trading transaction of its shares on the SET for more than 5 years. At present, SCBT is also in the process of delisting its shares from the SET. Therefore no price of SCBT’s securities is available to be used for comparison.
Based on the above information, the banks used in the comparison are as follows: 1. 2. 3. 4. 5.
Bank of Ayudhya Public Company Limited (“BAY”) Kasikornbank Public Company Limited (“KBANK”) Siam City Bank Public Company Limited (“SCIB”) TMB Bank Public Company Limited (“TMB”) Tisco Bank Public Company Limited ("TISCO")
P/BV of the banks used as comparison is calculated from the closing price of the shares of each bank as at 10 October 2007, which was the date prior to the date the Board of Directors approved the offering of the remaining ordinary shares after the rights offering to the Private Placement Investors, divided by book value per share of each bank as at 30 June 2007. Details are as follows: Bank
BAY KBANK SCIB TMB TISCO Average BT
Closing Price as at 10 Oct 07 (Baht) 28.00 86.00 18.10 2.02 31.50
Trading Value as at 10 Oct 07 (Million Baht) 495.90 359.63 98.09 100.48 52.92
3.10
Book Value ^ as at 30 Jun 07 (Baht Per Share) 12.95 39.69 17.70 1.64 16.11
2.28
3.66
P/BV (Times) 2.16 2.17 1.02 1.23 1.96 1.71 0.85
Source: SETSMART ^ Book value of each bank as presented in the financial statements of each bank as at 30 June 2007 as audited by the auditors.
Period *
30 business days (30 Aug 07 – 10 Oct 07) 60 business days (17 Jul 07 – 10 Oct 07) 90 business days (5 Jun 07 – 10 Oct 07) 120 business days (19 Apr 07 – 10 Oct 07)
Average P/BV of 5 Banks (Times) 1.62
Shareholders’ Equity as at 30 Jun 07 (Million Baht) 7,681.90
Book Value Per Share (Baht Per Share) 3.66
Share Value (Baht Per Share)
1.63
7,681.90
3.66
5.95
1.64
7,681.90
3.66
5.99
1.58
7,681.90
3.66
5.77
5.94
Source: SETSMART
13
Data as of 9 April 2007
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Translation * Period used in calculating BT’s share value ranges between 30 – 120 business days as such period should be able to reflect the volatility of market prices and cover both the recent up and down cycles of the price.
Based on price to book value approach, the value of BT’s share ranges from 5.77 – 5.99 Baht per share. 4.4.2
Price to Earning Ratio Approach (P/E) Price to earning ratio approach multiplies earning per share of BT for the 12month period ended 30 June 2007 by the average price to earning per share ratio of the banks with total assets as at 30 June 2007 of greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET used in the comparison. However, as BT’s performance during the last 4 quarters shows negative result, P/E ratio thus cannot be used in the calculation of share value. The Financial Advisor hence is of the opinion that this approach is not appropriate to evaluate the value of BT’s share.
4.5 Dividend Discount Model Approach (DDM) Dividend discount model approach is the calculation of the present value of future dividend cashflow expected to be received by the shareholders from BT’s operation, based on the present and future assumptions. The Financial Advisor opines that dividend discount model approach should be used in calculating value of BT’s ordinary shares for this capital increase because nature of the holders of banks’ stocks are mostly not intended to own the business but rather to be the investors whose expected returns would be in form of dividend and capital gain in the future. Other approaches of valuation from the projection, e.g. discounted cashflow approach, may not suit the nature of general banks’ shareholders as these approaches are normally used for the major shareholders of the firm whose expected returns are from the ownership of the business or from the divestment of the company in the future. The Financial Advisor’s DDM valuation of BT’s value from the financial projections is based on appropriate assumptions prepared by BT. The information adopted in the financial projections, some of which being further revised, is sought from BT’s officers by the Financial Advisor. It had also studied the past financial statements, information and materials from BT. However, in this valuation of BT’s ordinary share, the Financial Advisor bases its valuation on a going concern basis of BT’s operation in the future by taking into account a result of stronger capital base from the offering of increased capital to the Group of New Investors of 731.45 million shares, capital decrease via par value reduction to eliminate share discount and retained deficits, and capital reduction by canceling unsold preferred and common shares of 3,706.80 million shares and 208.55 million shares, respectively. It also assumes that there are no significant changes and that the operation is in accordance with current economic condition with the purpose of determining appropriate share value for this offering of increased capital only. Should there be any significant change in the economic condition as well as other external factors affecting business operation, including significant change in business status, from the aforementioned assumptions, share price evaluated by this approach would also be changed and cannot be used as reference for any other purposes apart from what is stated above. 37
Translation
Key Assumptions Used in the Financial Projections for the Year 2007 – 2011 Sources of assumptions used to prepare the financial projections comprise financial information from BT, current economics data and projected figures and interview with BT’s officers in charge of a preparation of BT’s financial projections. The financial projections have been partially revised by the Financial Advisor as deemed appropriate. •
Loans Due to current intense competition in the industry, both in terms of the interest rate and various promotional campaigns to attract customers, BT plans to increase its lending provision to the SME and retail banking customers in order to increase its customers base. It forecasts that lending portfolio would slightly decrease by 0.80% in year 2007. However, as a result of enlarged capital base from the capital increase, BT should be able to expand its lending portfolio by approximately 13% in year 2008 – 2011. The average lending interest rate is expected to increase slightly in each year. Comparing with that in year 2005, loan portfolio in year 2006 declined by 25% due to the settlement of Covered Asset Pool (CAP) Agreement with the FIDF while the balance of non-CAP loans grew by 13% from year 2005.
•
Investment – net BT expects growth of net investment will grow by 21% in year 2007 comparing with the growth of net investment by 18% in year 2006 as the yield maintenance income from the FIDF was used for additional investment. Net investment as at 30 June 2007 rose by 27% from net investment at the end of year 2006. BT expects net investment in the second half of year 2007 would decline due to subprime crisis and additional allowance for impairment of investment. However, BT expects growth rate of net investment in year 2008 – 2011 of approximately 3 – 4% p.a. according to its investment policy. As at 30 June 2007, BT has investments in overseas debt instrument which are classified as held to maturity of 49,652 million Baht (as aforementioned in Summary of BT’s Financial Status and Operating Performance Re: Overview of the past operating performance Section). However, because of subprime crisis in the US, BT has provided additional allowance for impairment which may be affected by the devaluation of CDO’s in the future in the amount of approximately 2,323 million Baht in the 3rd quarter of year 2007. Moreover, under the possibility of a change in the BOT’s regulation relating to the investment in structured notes, BT has considered to provide additional allowance for impairment of investment in the structured notes equivalent to approximately 2% of total investment in the structured notes in year 2007.
•
Revenue Major revenue of BT consists of revenue from lending, revenue from investment and revenue from interbank and money market.
38
Translation
-
Revenue from lending BT forecasts the revenues from lending would increase according to the plan to expand towards the SME and retail banking customer base. It forecasts that revenues from lending in year 2007 would increase by 1.32% from year 2006. Revenues from lending in the first 6 months of year 2007 accounted for 51% of total revenues from lending expected to earn in year 2007. However, as a result of the enlarged capital base from capital increase, BT should be able to increase its lending extension. Accordingly, revenues from lending should grow by 15 – 20% in year 2008 – 2011. BT forecasts the rates of return from lending should be around 7 – 8%.
-
Revenue from investment In year 2007, BT expects revenues from investment should increase by 3% from year 2006 because of the increase in investment as aforementioned. Revenues from investment in the first 6 months of year 2007 accounted for 49% of total revenues from investment expected to earn in year 2007. In year 2008 – 2011, growth rate is expected to be around 2 – 4% due to the effect from subprime crisis. On a conservative basis, BT estimates the investment return would be reduced to approximately 5% of the average investment.
-
Revenue from interbank and money market BT expects the return from interbank and money market transaction would be relatively stable at 3.3 – 4.0% in year 2007 – 2011 which is relatively similar to that in year 2006 and the first half of year 2007 of 5%.
•
Deposits and interest expenses BT expects the deposits would decline by 5% in year 2007 which is coherent with a decrease in lending as well as the low deposit rate and its relatively small size which lower its competitiveness. BT forecasts its deposits would increase by 8 – 10% in year 2008 – 2011 attributable to the aggressive marketing policy, the expansion of branches to cover and reach a wider range of customer and maintenance of its customer base. Considering the deposit balance as at the end of year 2006, BT’s deposit declined by 7% comparing with that as at the end of year 2005 due to intense competition in the market in term of deposits interest.
•
Provisioning for allowance for doubtful debts BT projects the minimum provisioning rate for doubtful debts would be pursuant to the BOT’s requirement according to class of debts as follows: Normal debts Special-mentioned debts Sub-standard debts Doubtful debts Bad debts
Minimum Provisioning Rate Pursuant to the BOT Criteria 1% 2% 100% 100% 100%
During the year 2006, BT provided allowance for doubtful debts in accordance with the revised guidelines on determining allowance for doubtful accounts of the BOT issued in December 2006. It had made a 100% provision of the debt balance remaining after deducting the present value of expected future cash flows from debt
39
Translation collection or from collateral disposal, based on the use of the stipulated discount rate and the time needed to dispose of collateral, in accordance with the BOT’s guidelines which was already sufficient for lending balance at that time. However, in year 2007, BT has considered additional contingent loss which may be incurred from the default of some accounts receivable with indicative behavior of potential default in the future. BT, therefore, has provided additional allowance for doubtful debts to be sufficient for the loss which may incur to BT in the future. Total allowance for doubtful debts up to the end of the 3rd quarter of year 2007 amounted to 3,144 million Baht. •
Non-performing loans BT will increase its cautiousness in the management of lending extension to maintain the proportion of non-performing loans at the industry level. In year 2006 and 30 June 2007, BT’s proportion of non-performing loans stood at 3.77% and 7.15%, respectively. It expects that non-performing loans will maintain at 5 – 6% in year 2008 – 2009 before declining to approximately 4% thereafter.
•
Administrative expenses, consisting of:
- Personnel expenses: According to its business plan, BT would concentrate on business expansion towards the SME and retail banking customers. Hence, BT needs to increase the number of branches and staff to facilitate the planned business expansion. BT forecasts personnel expenses would increase by 15%, or accounting for 11% of total revenues, in year 2007 and 8 – 10% in year 2008 – 2011, or accounting for 12 – 14% of total revenues. Comparing with those in year 2005, personnel expenses grew by 17% in year 2006. Personnel expenses in year 2006 and the first half of year 2007 accounted for 12% and 9% of total revenues, respectively. Personnel expenses during the 6 months period of year 2007 accounted for 43% of total forecasted personnel expenses in year 2007. -
Premises and branch expansion expenses: BT expects premises and branch expansion expenses would increase by 21% in year 2007 correspondingly to business plan to focus in the expansion towards the SME and retail banking sectors. It is expected that around 25 new branches will be opened in year 2007 and increase in consistent with the growth of lending expansion. Therefore, the growth rate of premises and branch expansion expenses is expected to stand at 57% in year 2008 as the result of substantial branch expansion in year 2007 would have a full impact to such expenses in year 2008. These expenses would then continuously increase by 4 – 11% in year 2009–2011. Comparing with those in year 2005, premises and branch expansion expenses rose by 17% in year 2006. Premises and branch expansion expenses incurred during the first 6 months of year 2007 accounted for 49% of total forecasted expenses for the year 2007.
-
Special business tax is expected to stand at approximately 3.3% of interest and dividend income, which is similar to that in year 2006. BT’s special business tax in the first 6 months of year 2007 was equal to 3% of interest and dividend revenues and 51% of total forecasted expenses for the year 2007.
-
Contributions to the FIDF are expected to stand at 0.4% of deposits balance, which is similar to that in year 2006. BT’s contributions to the FIDF in the first
40
Translation 6 months of year 2007 accounted for 0.2% of deposits balance and 52% of total forecasted contributions for the year 2007. -
•
Other expenses, e.g. marketing expenses, public relations, etc., are expected to increase by around 6 – 12%. This is due to incremental expansion of lending portfolio towards retail banking customers, thereby increasing commission fees relating to the expansion of such loan expansion. BT’s other expenses in the first 6 months of year 2007 accounted for 38% of total forecasted expenses for the year 2007.
Gain (loss) from foreign exchange/ derivatives BT expects gain from foreign exchange/ derivatives would decline in year 2007 as compared with that in year 2006. This is mainly due to loss from hedging against such derivatives as overseas debt instrument in CDO’s which will be recorded in gain (loss) from foreign exchange/ derivatives account as well as the fluctuation in foreign currency market. In the first 6 months of year 2007, BT’s gain (loss) from foreign exchange/ derivatives (excluding loss from hedging against overseas debt instrument) accounted for 50% of expected gain (loss) from foreign exchange/ derivatives in year 2007. BT forecasts that gain (loss) from foreign exchange/ derivatives would increase by 15% in year 2008 – 2011 (excluding loss from hedging against overseas debt instrument).
•
Dividend payment policy BT sets out a policy to make dividend payment of not less than 40% of the annual net profit. BT made the last dividend payment of 0.07 Baht per share to its shareholders in year 2002. In preparing the financial projections, the decrease of registered capital via par value reduction which enabled BT to eliminate its retained deficits from year 2006 financial statements is taken into account. Together with capital increase to the Group of New Investors and policy of lending expansion towards the SME and retail banking customers, BT should earn net profit and be able to pay dividend to its shareholders. Nevertheless, in year 2007 it is expected that BT would make additional provisioning as a result of loss which may be incurred from the investment in overseas debt instrument, resulting in net loss to BT in year 2007, thereby preventing BT from dividend payment. However, the Financial Advisor sets out the assumption that in year 2008 BT would decrease its capital via par value reduction again in order to eliminate the entire retained deficit and share discount incurred in year 2007, thereby enabling BT to pay dividend in year 2008.
•
Issued and paid-up capital According to the financial projections prepared by BT, BT has taken into account the offering of increased ordinary shares via rights offering to the existing shareholders at the proportion of 1 existing share to 2 newly issued shares. After this capital increase to the existing shareholders, BT’s issued and paid-up capital would stand at 25,030 million Baht or 6,675 million shares at par value of 3.75 Baht per share (under the assumption that the entire shares offered to the existing shareholders can be sold, i.e. no shareholders do not subscribe for the increased capital).
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Translation Value from Dividend Discount Model Approach By using dividend discount model approach, the Financial Advisor would evaluate value of BT’s shares from the value of dividend and capital gain upon sale of share in the future. The following is a formula used in the calculation: V(0) =
Whereas
D(1) + D(2) + D(3) + D(4) + D(5)+V(5) 2 3 4 1+Ke (1+Ke) (1+Ke) (1+Ke) (1+Ke)5 V(0) D(t) Ke V(5)
= = = =
Present value of BT’s shares in the current year Dividend to be paid in year t Rate of return on equity Value of BT’s shares in the 5th year (“Terminal Value”) calculated from the average price to book value ratio of comparable banks in the industry14 multiplied by BT’s book value at the end of the 5th year
For Ke, Capital Asset Pricing Model (CAPM) is used in the calculation as follows: Rate of return on equity (Ke) =
Rf + ß (Rm-Rf)
Whereas: -
Rate of return on risk free investment (Rf), referred from 10-year government bond interest, is 4.87% per annum (data as at 10 October 2007 from www.thaibma.or.th). Theoretically, Rf should refer to interest rate of long-term government securities. Terms of Thai government bonds which still have liquidity are 10 years.
-
Beta (ß), calculated from the average historical ß of the Company during the past 5 years, equals 0.93 from Bloomberg.
-
Market return (Rm) is derived from the rate of return from the investment in the SET during the past 5 years, commencing from 11 October 2002 to 10 October 2007. Such calculation comprises returns from the fluctuation of the SET indices but excludes the returns on 19 and 20 December 2006 as such figures are considered indication of irregular events due to the implementation of measures regarding the reserve requirement on foreign currencies by the BOT. Moreover, the market returns during the past 5 years are used in the calculation as such period should cover the past fluctuation of market situations, which should represent the market return appropriate for present and future condition. Such period is also consistent with the period of the financial projection. The average 5-year market return on the SET is 22.14% per annum.
-
Therefore, Ke derived from the calculation equals 20.88%.
Price to book value ratios used in the calculation of Terminal Value range from 1.48 – 1.53 times based on the calculation of average historical P/BV ratio during the past 30 – 120 days of BankThai Plc., Kasikornbank Plc., Bank of Ayudhya Plc., TMB Bank Plc., 14
Which are Bank of Ayudhya Public Company Limited (“BAY”), BankThai Public Company Limited (“BT”), Kasikornbank Public Company Limited (“KBANK”), Siam City Bank Public Company Limited (“SCIB”), TMB Bank Public Company Limited (“TMB”) and Tisco Bank Public Company Limited (“TISCO”).
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Translation Siam City Bank Plc and Tisco Bank Plc. The rate of return on equity (Ke) stood at 20.88%. Present value of dividend cashflow (million Baht) Present value of Terminal Value (million Baht) Present value of total shareholders’ equity (million Baht) No. of shares (million shares) Price per share (Baht per share)
P/BV = 1.48 times 1,216 10,230 11,445
P/BV = 1.53 times 1,216 10,575 11,791
6,675 1.72
6,675 1.77
As shown in the above table, appropriate value of BT’s ordinary shares according to the dividend discount model approach is in the range of 1.72 Baht per share to 1.77 Baht per share. Sensitivity Analysis In order to examine the effect of the rate of return on equity (Ke) to the valuation of the Company, the Financial Advisor has conducted a sensitivity analysis for DDM approach. In calculating present value, it sensitizes the rate of return on equity (Ke) while the average price to book value per share ratio is in the range of 1.48 to 1.53 times which is the average price to book value per share ratio during the period of 30 – 120 days prior to the date BT’s BOD passed the resolution on 11 October 2007 regarding the approval of the offering of the remaining shares after rights offering. The calculation of Terminal Value under each scenario can be illustrated as follows: Rate of Return on Equity (Ke) (%) 19.88 20.38 20.88 21.38 21.88
Average Price to Book Value Per Share Used in Terminal Value Calculation 30 Days 60 Days 90 Days 120 Days P/BV = 1.49 P/BV = 1.51 P/BV = 1.53 P/BV = 1.48 Times Times Times Times 1.79 1.81 1.83 1.78 1.76 1.78 1.80 1.75 1.73 1.75 1.77 1.71 1.69 1.71 1.73 1.68 1.66 1.68 1.70 1.65
From the above sensitivity analysis, the value of BT’s shares is in the range of 1.65 Baht per share to 1.83 Baht per share. Summary of the Opinion on Value of the Ordinary Shares Summary of the value of BT’s share deriving from various approaches is provided in the following table: Valuation Approach 1. Book Value Approach 2. Adjusted Book Value Approach 3. Market Value Approach 4. Market Comparable Approach
Share Value (Baht Per Share) 2.26 2.20 3.03 – 3.12
43
Translation Valuation Approach - Price to Book Value Approach - Price to Earning Approach 5. Dividend Discount Model Approach
Share Value (Baht Per Share) 5.77 – 5.99 N/A 1.65 – 1.83
According to the above table, the price of BT’s share ranges from 1.65 – 5.99 Baht per share. The Financial Advisor is of the opinion that book value approach and adjusted book value approach are not appropriate for BT’s share valuation, because these approaches evaluate BT’s value based on the operating performance in the past at a specific point of time only without considering its operating performance and economic trend in the future. Therefore, these approaches may not reflect the real value of BT. The Financial Advisor views that the price to book value approach is not appropriate although the calculation is based on the average P/BV of 5 comparable banks, with similar business to BT, whose total assets as at 30 June 2007 is greater than 0.1 trillion Baht but not more than 1 trillion Baht and listed on the SET. This is because BT had substantial investments in overseas debt securities, especially CDO’s and structured notes which are affected from subprime crisis. As a result, BT is required to make additional provisioning for allowance for impairment of investment while other banks used in the comparison had no or fewer proportion of investment in CDO’s and structured notes. Therefore, share value derived from this approach may not reflect the real value of BT. The Financial Advisor is of the opinion that the appropriate approaches for BT’s share valuation are market value approach and dividend discount model approach. According to the market value approach, share value is in the range of 3.03 – 3.12 Baht per share. The Financial Advisor views that this approach is appropriate as the market price adopted in the valuation is the weighted average price during the period of 7 – 30 business days prior to the date of BT’s BOD meeting to approve the offering of the remaining shares from rights offering to Private Placement Investors. Share prices during such period should already reflect BT’s recent operating performance. The Financial Advisor opines that the dividend discount model approach is appropriate because this approach takes into account not only BT’s past performance but also the performance and business plan in the future as a result of an adjustment in BT’s business operation strategy, including potential effect from devaluation of investment in structured notes, which, therefore, should reflect the true value of BT. The appropriate value of share deriving from market value approach and dividend discount model approach ranges from 1.65 – 3.12 Baht per share. Furthermore, BT intends that the offering price to the Private Placement Investors will be higher than the offering price in the rights offering. In addition, shares offered to the FIDF and Newbridge in this offering are the remaining shares in which the existing shareholders decide not to exercise their subscription rights. It is, therefore, not the intention of BT to issue the new shares to be offered to the FIDF and Newbridge. The offering of such remaining shares would also help ensure that BT will obtain the full amount of proceeds from capital increase as planned.
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Translation
Appropriateness of the Condition of the Transactions BT expects it will obtain proceeds from the offering of the remaining shares not subscribed by the existing shareholders under the rights offering to the Private Placement Investors within December 2007. In the allotment of the shares to the Private Placement Investors including the FIDF, Newbridge, Blum, MSOF and/or some of the existing shareholders who are not connected persons, BT will equally allocate the remaining shares to the FIDF and the Group of New Investors in order to create fairness and balancing of power. The Financial Advisor views that such payment condition is in accordance with normal practice.
5.
Summary of the Opinion of the Financial Advisor
BT’s Board of Directors will propose to the shareholders’ meeting to seek approval on the allotment of the remaining increased ordinary shares after the rights offering to the Private Placement Investors which include the FIDF and Newbridge at the price of 1.75 Baht per share (such price may be amended should the shareholders’ meeting approve that the Board of Directors or the President or any persons as designated by the Board of Directors be empowered to amend or change the offering price if there is any negative change in market conditions, provided that the new offering price which may be amended or changed by the Board of Directors under such conditions shall not be higher than the determined offering price of the private placement offering, provided that such price shall not be lower than 1.00 Baht per share and the offering price of the rights offering). The allotment of the remaining shares after the rights offering to the FIDF and Newbridge will provide the following benefits to BT:
Help ensure that proceeds BT will obtain from the fund raising will be in the amount as planned, thereby enabling the Company to maintain its financial status in accordance with the BOT’s requirement and to expand its business according to the determined business plan.
However, weaknesses of the share offering to the FIDF and Newbridge to BT are as follows:
Earnings per share and rate of return on equity of other shareholders may immediately decline if the remaining shares after subscription by the existing shareholders are allotted in form of private placement offering instead of canceling them and subsequently increasing capital in the future should fund raising be required.
The shareholding proportion of the FIDF and Newbridge may increase to 42.43% and 34.54%, respectively (under the assumption that all other shareholders, apart from the Private Placement Investors and BT’s subsidiaries holding the ordinary shares of the Company, do not exercise their rights to subscribe for the increased shares and the entire remaining shares are offered to the FIDF and Newbridge). Therefore, it will be highly possible that the FIDF and Newbridge will have a controlling power in the agenda which require three fourths voting approval from the shareholders’ meeting. However, the two groups of major shareholders, i.e. the FIDF and the Group of New Investors, will have equal percentage of shareholding and, therefore, will be able to balance the power of each other in the shareholders’ meeting.
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Translation Furthermore, BT’s offering of the remaining shares after the rights offering in a private placement as compared with the offering of shares to other investors will provide the following benefits and weaknesses:
The FIDF Private placement offering to the FIDF will help BT continue to obtain full support from the FIDF should BT need financial assistance in the future while mitigating the risk of shares not being fully subscribed. It would help ensure that proceeds to be obtained from the capital increase will be in the amount as planned. Additionally, equal offering of the remaining increased shares to the FIDF and the Group of New Investors will allow equivalent percentage of shareholdings between the two groups of major shareholders, thereby balancing the power of each other. However, other shareholders may be affected from the share offering to the FIDF as the shareholding percentage of other existing shareholders wishing to subscribe for the shares in the amount in excess of their rights but not allotted with the excess shares may not increase in the same proportion as that of the FIDF. Also, as it is possible that the offering price may be lower than the market price during the offering period, if other existing shareholders wish to acquire additional shares of BT, they would need to purchase the shares at the market price. As a result, the cost of share acquisition of other existing shareholders may be higher than that of the FIDF.
Newbridge Private placement offering to Newbridge will help BT continue to obtain continual support from such group of investors equipped with experiences and expertise in global financial services business. Additionally, equal offering of the private placement shares to the Group of New Investors and the FIDF will allow equivalent percentage of shareholdings between the two groups of major shareholders, thereby balancing the power of each other. However, other shareholders may be affected from the share offering to Newbridge as the shareholding percentage of other existing shareholders wishing to subscribe for the shares in the amount in excess of their rights but not allotted with the excess shares may not increase in the same proportion as that of Newbridge. Also, as it is possible that the offering price may be lower than the market price during the offering period, if other existing shareholders wish to acquire additional shares of BT, they would need to purchase the shares at the market price. As a result, the cost of share acquisition of other existing shareholders may be higher than that of Newbridge. Furthermore, there remains the risk that the private placement shares may not be fully subscribed if Newbridge is not granted a waiver from the Ministry of Finance to hold more than 24.99% of BT’s shares.
The Financial Advisor has considered the offering price of the shares based on various valuation approaches. Appropriate approaches used in the valuation of BT’s shares are market value approach and dividend discount model approach. Appropriate value of the share ranges from 1.65 – 3.12 Baht per share. Furthermore, the shares to be offered to the Private Placement Investors are the remaining shares after subscription of the existing shareholders while BT intends that the offering price to the Private Placement Investors will be higher than the price offered to the existing shareholders. It is, therefore, considered the decision of the existing shareholders not to exercise their subscription rights. It is not the intention of BT to issue the new shares to be offered to the Private Placement Investors. 46
Translation However, current offering price of 1.75 Baht per share is less than 90% of the weighted average closing price of BT’s shares during the period of 7 business days prior to the date the Board of Directors approved such capital increase which was equal to 3.107 Baht per share. This, therefore, may be considered the offering of the newly issued shares at low price pursuant to the Notification of the Securities and Exchange Commission Kor. Jor. 12/2543 Regarding Application and Approval of the Offering of Newly Issued Shares. The Financial Advisor views that the shareholders should resolve to approve the entering into these connected transactions as current offering price of 1.75 Baht per share is within the range of the share prices derived from the valuation of the Financial Advisor of 1.65 – 3.12 Baht per share. However, if there is any negative change in market conditions that changes the offering price to be lower than 1.65 Baht per share, such offering price will be lower than the appropriate price. Additionally, the FIDF is the major shareholder of BT and has always provided support to BT’s business operation in the past. The offering to Newbridge, an expert with considerable experiences in financial services business, will help ensure that the Company will obtain continual support from Newbridge and its co-investors. Also, this offering of the increased capital is the offering of the remaining shares from the rights offering to the Private Placement Investors in which BT intends that the offering price will be higher than the price offered to the existing shareholders. Therefore, this private placement offering will help ensure that proceeds from capital increase will be sufficient for BT’s business expansion and its operation according to the plan. However, a decision to cast approval voting for the entering into these transactions is at sole discretion of BT’s shareholders. The Financial Advisor has disclosed related information of BT and given the opinion based upon the information supplied by BT, including the interview with BT’s management and officers, on the assumption that such information and assumptions are reliable, complete and accurate. The shareholders should also study all information in the documents attached with this invitation letter for the shareholders’ meeting in order to make judgment and discretion for the decision to cast the vote appropriately. The Financial Advisor certifies that it has provided opinion cautiously in accordance with professional standard for the benefits of the shareholders.
Yours Sincerely, Thanathip Vidhayasirinun (Mr. Thanathip Vidhayasirinun) Managing Director Sage Capital Limited
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