PTT Plc president Prasert Bunsumpun, third right, presides over a ceremony for the random selection of subscribers to Rayong Refinery’s initial public offering. SET president Kittiratt Na Ranong is first left.

Last week's surprising decision by Rayong Refinery Plc (RRC) to set its initial public offering (IPO) price at Bt18 per share - the low end of its indicative price of Bt18 to Bt23 - was a bid to ensure a successful debut for the stock, in the face of the recent sell-off phenomenon that has been seen on bourses throughout the world.

The IPO was substantially oversubscribed, but the unexpectedly low price whipped related stocks into a brief turmoil yesterday.

At Bt18 a share, RRC, the world's third-largest refiner, will raise a total of Bt25.16 billion. It was the country's third-largest IPO after that of Thai Oil Plc (TOP) at Bt32.64 billion and PTT Plc at Bt32 billion.

In recent years, all big market-capitalisation stocks making a public float have set their final IPO price at the highest end of their indicative prices.

For example, PTT sold its IPO shares at Bt35 apiece when its indicative price was Bt31 to Bt35, and TOP offered IPO shares at Bt32 each when its indicative price was Bt27 to Bt32.

"This [the RRC IPO] price is quite cheap," said Finansa Securities managing director Varah Sucharitakul. "I think the price on the first day of trading should not go lower than the IPO price. However, we don't know what the environment will be on that day." Proceeds from the IPO will be used to repay RRC's debts and raise its petroleum output from the present 145,000 barrels per day to 210,000 in 2008.

Finansa Securities served as RRC's financial adviser for the IPO.

Varah said the company was unable to postpone the IPO process to avoid the bearish stock-market environment, because it needed to expand production capacity.

PTT president Prasert Bunsumpun said he was satisfied with RRC's final IPO share price, which seemed suitable for the current market atmosphere.

RRC offered almost 1.4 billion shares in its IPO, of which 698 million were allocated to foreign investors, 479.5 million to local individual investors and 220 million to local institutional investors. A further 200 million shares were reserved as a greenshoe option to accommodate any additional demand.

He said the company would decide today how many additional shares it would allocate.

Following the IPO, PTT's stake in RRC will be diluted to 49.99 per cent.

Prasert said PTT would receive Bt15 billion from the sale of its 877.5 million RRC shares in the IPO. The sum will appear in the company's second-quarter earnings.

RRC's IPO shares were warmly received last week, with oversubscription by both individual and institutional investors averaging 1.5 times the number of shares on offer.

RRC said 52,600 retail subscribers with orders for 592.89 million shares were eligible to purchase stock. A total of 506.9 million shares are being sought by investors buying parcels of 1,000 to 25,000 shares. Investors seeking lots of 25,000 to 75,000 shares have ordered a total of 60.24 million shares, and the rest are being sought in parcels exceeding 75,000 shares.

Those subscribing to the smaller parcels will get first priority.

Pichai Lertsupongkit, executive vice president of Prudent Siam Securities, said selling IPO shares at the low end of indicative prices was not peculiar to RRC at the moment.

Thai Beverage Plc, Thailand's largest brewer and distiller, sold its IPO shares at 28 Singaporean cents (Bt6.75) in Singapore, almost at the low end of its indicative price of 26-36 cents, he said.

He said the steep fall in stock markets across the world had touched a raw nerve among investors, costing them their appetite for IPO shares and that this was the reason for RRC's low-end IPO price.

The unexpectedly low price sent stocks of PTT and TOP into turmoil yesterday.

"Based on Bt18 per share, RRC's shares would have a price-to-equity ratio of almost six, compared with that of TOP at seven. That's why TOP's shares were unloaded today; investors perceived that the price-to-equity ratio of both stocks should be on par," said Pichai. "In fact, TOP should have a higher price-to-equity ratio than RRC, because it has a greater production capacity, and its financial position is far stronger."

One brokerage trader said RRC's low-end IPO price could be partly to blame for selling pressure on PTT stocks yesterday.

"PTT will receive a smaller amount from selling its RRC shares in the IPO," he said.

Piyarat Setthasiriphaiboon,

Oranan Paweewun

The Nation