• Industry: Private Equity
  • Type: Business and industry issue
  • Date: 12/8/2011

Capitalizing on growth: Thailand 

Capitalizing on growth: Thailand
With an expected 20 million international visits in 20111, Thailand is one of the world’s top 20 tourist destinations. As a destination for PE investment, the country has not delivered the dealflow that might be expected from South East Asia’s second largest economy2.

Restrictions on foreign ownership in some sectors and a lack of obvious targets may have deterred investors, but those prepared to dig deep may find some promising assets. Thailand has a substantial population of owner-managed business (OMBs) that have good growth prospects and many of these companies are well positioned to benefit from government policies such as the increase in the minimum wage, which is expected to increase domestic demand and drive economic growth.

Yingluck Shinawatra’s majority victory marks an end to coalition government and should hopefully provide some policy stability, reducing uncertainty for investors. There are challenges for investors in Thai companies: many listed companies are family-controlled with complex cross shareholdings, unreliable historical financial data in the OMB sector, unrealistic price expectations among vendors who are not under pressure to sell, and the Foreign Business Act, which bars investors from key sectors such as telecoms. On the other hand, the regime for foreign investors in terms of repatriation of profits and the tax regime is favorable. Privatization of state assets is not expected in the immediate future but longer-term the government needs to finance its political commitments.

Global PE players have flown into Bangkok in recent years, but have generally not found opportunities of sufficient scale. Many of the more sizable assets are in the hands of conglomerates, often family owned or dominated, who have proved reluctant sellers. This may change in the medium term as patriarchs pass control to the next generation. With only a few domestic players, regional houses targeting mid-market transactions and staffed with well-educated locals, are probably best positioned to lead the way for PE investors in the small to mid-sized deal sector.

If suitable opportunities do arise, the success of some leading Thai corporate players illustrates that it is possible to build globally competitive companies out of Thailand. For instance, in 2010 Indorama became the world’s largest PET manufacturer after paying Invista US$420 million for facilities in Mexico and the US.3

Market Analysis

Thailand’s economy grew strongly in 2010, with GDP growing 7.8 percent, reversing a 2.3 percent contraction in 2009 as the export-led economy was hit by the slowdown in developed markets. The Thai Ministry of Finance is expecting growth of 3.8–4.3 percent in 20114, which would be in line with average growth rates since the Asian fi nancial crisis of the late 1990s5. Thailand’s 2010 GDP of US$584 billion makes it the 24th largest economy in the world.

The automotive sector is a world leader, accounting for 12 percent of GDP. The earthquake and tsunami in Japan affected the sector, but production bounced back quickly. Agriculture is a key sector, employing 42.4 percent of the 67 million population6, and the country is the world’s largest exporter of rice.

Thailand has a good track record of attracting foreign direct investment (FDI), particularly from Japan, though the financial crisis saw FDI decline from a peak of US$11.32 billion in 2007 to US$4.98 billion in 2009, since when it has grown steadily and is expected to hit US$7.99 billion in 2011.7 While the country had a history of political uncertainty, this has little impact on FDI, which was not adversely affected by the 2006 coup. Unfortunately as a market for Private Equity investment, Thailand has performed less well than many of its South Asian counterparts.

1Bangkok Post, 22 August 2011

2International Monetary Fund, World Economic Outlook Database, September 2011

3Invista, November 2010

4Bloomberg, 28 September 2011

5CIA World Factbook, October 2011

6CIA World Factbook, September 2011

7Economist Intelligence Unit, August 2011


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