Thailand’s Initial Public Offering (IPO) process is a complex procedure governed by the Securities and Exchange Act B.E 2535 (1992) (Securities and Exchange Act). The Securities and Exchange Act is responsible for the establishment of the Securities and Exchange Commission (SEC) which is the controlling body of the public offering of securities. The Securities Exchange Act is also responsible for the formation of the two stock exchanges in Thailand, the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI).
In Thailand, being listed on a stock exchange and offering shares to the public is restricted to public limited companies or juristic persons under special-purpose legislation. Accordingly, those wishing to offer shares to the public are not only bound by the Securities and Exchange Act but must also comply with any other laws that they are ordinarily subject to (for example, the Public Limited Companies Act B.E 2535 (1992)).
The entire IPO and listing process in Thailand takes approximately one to two years. The following explanation offers a simplified, five step approach on how a company conducts an IPO and becomes listed on the exchange.
Figure. The 5-Step Model for IPO Underwriting
The IPO and Listing Process
Step 1: Reviewing the Company and Appointing a Financial Advisor and Auditor
A company wishing to file an IPO with the SEC and list with an exchange must review and evaluate all aspects of the business including its management, internal control system and preparation of its financial statements and shareholding structure. As such, the company should appoint financial advisors, auditors and lawyers to assist them in the IPO filing preparation.
It is essential that the company employ a financial advisor. The appointed financial advisor must be selected from the approved list of the SEC. Their specific duties should include:
✓ Conducting due diligence;
✓ Establishing standard internal control systems;
✓ Re-structuring the company as needed, including business, equity and shareholding structures;
✓ Preparing documents and information for the IPO filing and the listing application; and
✓ Distributing securities or employing an underwriter to distribute securities.
An auditor or team of auditors must be chosen from the SEC-approved list and will generally focus on reviewing and improving the internal audit system. This may include the preparation of the quarterly and annual financial statements. The SEC and both Thai exchanges impose rigorous standards, and auditors play an integral role in assisting the company’s compliance with such standards.
Lawyers are a fundamental service throughout the offering process. The legal team will advise the company on any restrictions on IPOs arising from contract, as well as assist in compliance with relevant laws and regulations governing the IPO process. Generally, the lawyers will also be involved in the drafting of the registration statement and prospectus.
Step 2: Converting the Company Limited into a Public Company Limited
Prior to filing for an IPO with the SEC, the company must be converted from a ‘company limited’ to a ‘public company limited.’ Essentially, the private company limited should observe the following process in order to effectuate the conversion:
1. The Board of Directors approves and convenes an annual general meeting (AGM) of shareholders.
2. Notices of the AGM are sent out to shareholders and published in the newspaper.
3. An AGM occurs where the conversion is approved by ¾ of the total voting rights. The objectives, capital, articles of association, election of Directors and specific authority of the Directors are all considered and finalized.
4. The existing Board of Directors relinquishes the business to the new Board.
5. The conversion of the company into a public company limited is registered with the Thai Ministry of Commerce.
There are certain timing requirements applicable to the conversion process including:
✓ The AGM must be held within 14 days of the notice being sent to shareholders;
✓ The existing Board must hand over the company to the new Board within seven days of the AGM; and
✓ The conversion of the company must be registered with the Thai Ministry of Commerce within 14 days of the AGM.
In accordance with the provisions of the Public Company Limited Act B.E 2535, a public company limited must satisfy the following elements:
✓ Have at least 15 shareholders who are natural persons; and
✓ Have at least five directors, with no less than half of them having Thai residency.
There are no minimum capital requirements, however, in terms of paid-up capital all shares must be equal in value and paid in full.
Step 3: Applying for the IPO and Listing on the Exchange
Once registered with the Thai Ministry of Commerce, the company is able to submit the IPO filing with the SEC. The financial advisors will submit the following documents as consistent with the IPO filing requirements:
✓ Application for public offering;
✓ Registration statement; and
✓ Draft prospectus.
After the submission of all necessary documentation, the SEC and the exchange will review the documents and visit the company to conduct an evaluation. The SEC and exchange have the authority to request additional documents and make further inquiries as necessary, which the company must comply with.
Generally, the SEC will spend around 45 days reviewing the IPO after receipt of all requested information. Granting an approval is based on certain criteria with the overwhelming aim being to protect investors and to ensure that shareholders are treated fairly. Ultimately, it is the decision of the SEC to determine if these criteria are met, however some considerations include sufficient disclosure in financial statements, as well the proper preparation of such financial statements in accordance with accounting standards. Further, the SEC will examine whether there is a fair and transparent company structure in place and will scrutinize the Board of Directors and their dealings to identify any potential conflict of interest.
The registration statement must comply with the prescribed form issued by the Capital Market Supervisory Board and the draft prospectus with that of the Office of the SEC. Among other things, these documents should contain information regarding the details of the issuing company, such as corporate governance policies and financial status, as well as the details of the offering of shares, such as the fixing of the share price and allocation methods.
If the SEC approves the IPO filing, the exchange will consider the company’s listing application subject to the requirements detailed below.
Step 4: Distributing the Shares to the Public
The company must distribute its shares to minority shareholders at or above the minimum requirement. The newly publicly listed company is required to engage an underwriter who will aid in the distribution of shares.
The two general methods of underwriting are:
1. Firm underwriting: All securities must be distributed by the underwriter. If the underwriter is not successful in doing so, they must purchase the remainder of the undistributed securities. The result being that the company can seek the full amount of capital.
2. Best effort underwriting: Generally, a less expensive option than firm underwriting, here, the underwriter need only use its best efforts to distribute as many securities as possible. Any undistributed securities do not need to be bought by the underwriter.
Step 5: Trading on the SET or MAI
In Thailand there are two different markets in which a public company can be listed, the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI). The SET is seen as the ‘premium’ market however, entry requirements are more onerous than the entry requirements for its counterpart.
The Stock Exchange of Thailand
Prior to applying for listing, companies entering into the SET are required to have a three-year track record demonstrating either:
✓ Combined net operating profits of least 50 million baht over the past two or three years and net operating profits of at least 30 million baht for the latest full year; or
✓ Market capitalization following the IPO of at least 5 billion baht. This can be calculated in one of two ways:
1. If applying for listing within one year of the IPO: the IPO price times the number of outstanding shares; or
2. If applying for listing more than a year after the IPO: by a financial advisor, as long as earnings before interest and tax are above zero for both the latest year and for the accumulated quarterly results from that year.
After the acquisition of the IPO, a company must also have the following:
✓ A minimum of 300-million-baht total shareholder’s equity; and
✓ A minimum of 300 million baht in total paid up capital.
The Market for Alternative Investment
As with the SET, the MAI also has certain entry requirements. In order to be eligible to list on the MAI the public company, prior to applying for listing, must have a two-year track record demonstrating:
✓ Combined net operating profits of at least 10 million baht over the past year and a net profit in the last quarter; or
✓ Market capitalization of at least 1 billion baht.
Moreover, the company is required to have offered for sale an amount of shares representing at least 15% of its paid-up capital.
Subsequent to the IPO, it is essential the company listed on MAI maintain:
✓ A minimum of 50 million total shareholders’ equity and paid up capital; and
✓ An increase of at least 50% minority shareholders holding at least 25% of the paid-up capital.
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