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Been to Bangkok, done that, now buy the train (fares). Any visitor to the city will have seen the Skytrain snaking above their heads. Its operator is now bundling the future fares from the city train into a trust that it will list to become Thailand's biggest-ever initial public offering. It comes after a rally in the country's benchmark SET index which has trebled in value since the end of 2008. Is BTS Group taking advantage at the peak of the market or is this a genuine opportunity for investors?
The train operator is raising funds in order to bid for contracts as part of government plans to extend the city's 80-kilometre rail network by 600 per cent by 2029. BTS Group will retain a one-third stake after the flotation. The fund consists of the profits from fares for the 17 years remaining on the current Skytrain contract, plus rights of first refusal to similar revenues from any future projects won by BTS Group.
Consider those rights a free option – but no more for now. After all, Skytrain did not have an easy ride in its early years. Previous efforts to ease Bangkok's notorious traffic problems were stalled by politics. As a result, the lines were initially a financial failure, and emerged from bankruptcy in 2007 after restructuring.
Trusts such as this one neatly tap into the southeast Asian growth story as well as investor hunger for yield. The units are expected to offer a dividend yield between 6 and 6.2 per cent – two percentage points above a 17-year Thai government bond.
Trusts also carry one advantage peculiar to Asia – they are simple businesses. While many companies are happy to mix completely unconnected businesses – BTS Group's golf club and property unit are one example – investors know exactly what they get here. Bankers promoting this deal will not dwell on that, but it is an attraction investors wanting exposure to Thailand might want to bear in mind.