Protests

Well it’s keep it short. I don’t see how this government steps down when they control the Government, the police, the army, the navy, the airforce, the courts etc etc. I can’t remember the last time there was a “political” group this powerful in Thailand’s modern history.

I’ll rephrase this, there is one potential way they step down, and it’s unfortunately a violent approach. The other is that the protestors and friends have to figure out how to financially squeeze the aforementioned parties, whenever a group sees that their pockets are being emptied they’ll change their viewpoints…or fight back harder.

With the aim of monarchy reform, one of their hit points is the USD 1 bn budget. What I’m presuming is that this funds an institution where there are 10,000 – 20,000 people? That’s a lot of people that will loss their rice bowl. And what about the MR’s and ML’s that thrive on the “birth-right” of respect and favouritism that live off the existing social structure. Perhaps if the protestors get one of those to join them it would add a lot of weight to their argument.

BGC bottled it

Last month BGC announced an EGM plan that they were going to raise cap and buy their own private assets/businesses at inflated prices.

On 1 Nov I commented

“Will this go ahead?

• Sure, the family group owns over 75%
• But it does explain why the share price has dropped from 13 to 8 thb/share since this ridiculous acquisition has been announced.
  “

Source: https://www.thaicapitalist.com/random-thoughts-howard-marks-bgc-ichi/

Now the winds have changed and BGC may have realised that they were farting upwind as on the 12th November they’ve cancelled their rather ridiculous plan to raise cap and pay high prices for their private businesses.

Although their public reasons for the cancellation are:

“has considered and deemed that the Acquisition of Assets is in line with the long-term strategic plan and provides benefits to both the Company and all shareholders, and the independent financial advisor has opined that the Acquisition of Assets is a reasonable transaction (as per the additional details in the IFA Report), the current market condition is not supportive for the rights offerings of newly issued ordinary shares. In addition, the Company has received feedbacks from the shareholders regarding both the size of Acquisition of Assets and the capital increase. Therefore, for the interests of the Company and its shareholders, the Board of Directors Meeting resolved to approve the cancellation of the schedule for Extraordinary General Meeting of Shareholders No. 1/2020, the cancellation of the agenda items”

Source: SET

Quick thoughts:

• The IFA must’ve really needed the fees from this to say this was a reasonable transaction. Or perhaps my definition of reasonable is archaic.
• The fools on the Board must’ve not realised that raising that much capital would’ve led to a share price decline. Or did family member’s put their shares on margin and were annoyed that they were receiving margin calls?
• Did the SEC have the 8alls to give them a phone call and say this isn’t appropriate?

What has happened to the share price since?

• Well it’s recovered to ~11 from its low of 8.

• Though for the time being investors will probably treat this name like the STD infested prostitute that it is or more politely that perhaps the capital allocation decision making process of the board is not aligned with the interests of all stakeholders.

CPALL given the go-ahead by the OTCC to acquire TESCO

From the news releases

“
(Bloomberg) — British retailer Tesco and CP Group get Thai antitrust agency’s approval to move forward with sale of U.K firm’s domestic unit with certain conditions, according to the Office of Trade Competition Commission’s statement.

The OTCC said CP Group’s acquisition of Tesco’s businesses in Thailand would result in increased market power and significantly lower competition but won’t be a monopoly, thus deal would not cause damage to the economy nor general consumers Conditions for the acquisition include:
The two companies are prohibited from merging with other wholesale or retail business operators in Thailand for three years
E-commerce is excluded
CP Group units CP All and Ek-Chai Distribution System must  increase sales from small- and medium-sized enterprises,  especially agricultural products, community enterprise products or local products (OTOP) at 7-Eleven stores and all Tesco outlets by at least 10% from last year for 5 years
Ek-Chai must maintain contract terms and agreements between existing manufacturer and suppliers of products or raw materials for 2 years
Unless changes in the contract terms are beneficial to  manufacturer and distributors
CP All and Ek-Chai must support SMEs
CP All and Ek-Chai must report performances on quarterly basis or in a period specified by OTCC for 3 years
“
Source: https://www.bloomberg.com/news/articles/2020-11-06/thai-tycoon-gets-antitrust-nod-for-11-billion-tesco-assets-buy

Bangkok Post

• CP All Plc and Ek-Chai Distribution System, the conglomerate’s main retail business units, must increase the proportion of product sales from small- and medium enterprises at 7-Eleven stores and all Tesco outlets by at least 10% year-on-year for five years;
• The merged entity is barred from sharing any trade secrets with manufacturers or distributors of goods or raw materials;
• Ek-Chai, which runs the Tesco Lotus business, must maintain contract terms and agreements with existing manufacturers and suppliers of products or raw materials for two years;
• CP All, which operates 7-Eleven, and Ek-Chai must report business performance on a quarterly basis, or in a period specified by the commission for three years.

Source: https://www.bangkokpost.com/business/2015423/trade-watchdog-clears-cp-tesco-deal

Some quick thoughts from the news announcements:

• Yes on the metrics that the OTCC uses (go search for them online, it’s such a stupidly made set of criteria) this merger is not going to create a oligopoly/duopoly/monopoly system in retail.
• In common sense terms, yes it does.
• The two companies are prohibited from merging with other wholesale or retail business operators in Thailand for three years – CPALL/CP Group doesn’t have the balance sheet capable to acquire anything else for the next 3-5 years. They are barely able to pull this deal off without including multiple guarantees (do not be surprised to hear that CPALL shares are used for financing). And if you look, they haven’t even paid down the loans from the MAKRO acquisition.
• CP All Plc and Ek-Chai Distribution System, the conglomerate’s main retail business units, must increase the proportion of product sales from small- and medium enterprises at 7-Eleven stores and all Tesco outlets by at least 10% year-on-year for five years; – If you look at MAKRO’s shelves the # of products from CP Group has increased by 3x. And what is the penalty against CP Group if they don’t meet this requirement?
• I point to one flaw in the Banking system in Thailand which has allowed the large groups to expand so rapidly versus everyone else. “Commercial banks are restricted to loan extensions to a particular group of companies at 25% of each bank’s capital fund.” Source: https://www.bangkokpost.com/business/1743739/bot-requiring-sfis-to-apply-new-caps. 25%? Lower this to 5% and you’ll see a massive change in the industry shape up in the country. Veerathai, the previous BOT governor, didn’t have the backbone to do anything, I have my doubts the latest fellow will either.
• I wonder how long before Thailand changes it’s name to CCP (CP, Charoen, king Power)
• Does this mean CPALL is a buy? Sure at some price point and when tourism returns, they dominate the entire value chain, natural beneficiaries. But if interest rates just increase by 1-2% watch them struggle to pay the interest on their loans.