PTT: After the Tom-Yum-Kung Disease February 24, 2003 Piyaworn Chankanit Sunny Lo Jennifer Pawlowski Sam Shin

Agenda PTT and the Industry PTTEP EGAT Country Background Privatization Process Risk Assessment Valuation Recommendations IPO Update

Case Summary In November 2001, the Petroleum Authority of Thailand (PTT), privatized through the largest IPO in Thai history.

The Industry Oil Reserves Thailand has 300 mn barrels of proven oil reserves In ,000 barrels/day produced Natural Gas Reserves Proven in 2000: 12,705 Bcf Probable/possible reserves: 21,000 Bcf

PTT Operations began in 1978, state-owned enterprise Merger between Oil & Fuel Organization and Natural Gas Organization Thailand’s only fully integrated gas and oil company Industry leader in marketing and distribution of gas and oil products

PTT Oil Purchased in/outside Thailand Customer distribution – 1519 nationwide service stations Gas Principal processor and distributor Purchases from PTTEP and other producers in Thailand & Myanmar Customer distribution – large volume (power plants) and small volume (local vendors)

PTT Revenues

PTTEP Subsidiary of PTT, which has 61% equity interest Exploration and production of natural gas Owns 22% natural gas reserves In 2000, involved in 13 projects 9 with proven reserves, 5 exploratory 3 on shore, 10 offshore

EGAT Thailand’s principal state-owned power producer PTT’s largest customer Approximately 13% of PTT’s total 2000 revenue PTT highly dependent on EGAT sales to generate sufficient cash flows Reductions in EGAT demand highly affect PTT

PTT Value Chain

Pipeline Network

PTT Natural Gas Supply

Country Background Strong decade of economic growth pre- Asian financial crisis July 1997 Thai government floats currency (baht) resulting in immediate decline in value Spread of financial crisis to Asia and then global markets

IMF Involvement Post-Asian Crisis IMF granted $17.2 bn package to help institute economic reform Restructure financial sector, increase competitiveness, improve legal environment for business sector Thai government ordered to privatize many public industries PTT set for IPO in November 2001

PTT Privatization Original date in Q4 1998, but ultimately set for November 2001 Expectations PTT established as holding company and listed on Thai Stock Exchange PTT would gradually sell off subsidiary holdings Raise $14 bn in first 3 years of privatization

PTT Strengths Dominant position in industry Integrated natural gas operations Gas earnings reduce exposure to oil price volatility Low cost and growing upstream operations Experienced management team

Risk Assessment Operational Heavy dependence on EGAT for sales Take-or-pay purchase agreements Financial Highly leveraged (approx 80% D/V) Sovereign High currency risk Government has historically affected gas/oil prices

Discussion Points

Cost of Capital Calculation From ICCRC, the country rating of Thailand as of September, 2001 was 50.0 Cost of Equity:21.00% Risk Adjusted r E :17.00% Cost of Debt:10.20% Cost of Capital: 12.23% (in 2002)

Valuation AE31.64Bt FCFU24.06Bt Multiple (EV/EBITDA)49.62Bt Multiple (P/E)39.99Bt

Recommendation Macroeconomic conditions in 2001 much worse than today. Expected IPO price of Bt 37.5 – 65 overestimated PTT’s value. Our valuation indicates a proper value between Bt (FCFU) – (AE).

IPO Update November 22, 2001 Thailand secured largest privatization and fourth largest equity offering to date IPO raised proceeds of $726 mn Market capitalization of $2,741 mn Final pricing at the Bt 31 and Bt 35 range Currently trading at Bt 42 per share (02/0703)