Thai Bev / FNN

Thai Bev / FNN: FNN has requested for trading halt. Following the close of the FNN Offer yday, the Offeror and concert parties (ie. TCC Assets and Thai Bev) have control over an aggregate 90.3% of FNN shares. Thai Bev, which holds a 28.6% stake in FNN, says it is very pleased with the outcome of the offer and looks forward to working with TCC Assets in developing a constructive long term relationship with FNN mgt and will explore all options in an effort to enhance value. Under SGX rules, FNN shares will be suspended from trading if the free float falls below 10%, and has 3 mths to raise the level of free float, failing which the co may be delisted. As one of the core constituent of the STI (weighting of 4.45%), this could result in an index adjustment at the STI review come 18 Mar. CLSA previously noted existing STI constituents with possibility of a higher weighting adjustment would be OCBC, Jardine Strategic, ST Engineering, SIA Engineering, and Starhub. The house noted HPH Trust or Keppel Land as possible index inclusions. Adds Thai Bev could be considered for inclusion in the Sep ’13 semi-annual review. Separately, we note TCC Assets said it will reevaluate its options, including its right of compulsory acquisition, if FNN’s free float does not meet the 10% minimum required level. Taking FNN private would allow TCC Assets / Thai Bev greater flexibility in pursuing any potential restructuring plans at FNN. We reiterate Thai Bev has two key catalysts that could see the shares re-rated. i) Potential asset swap involving F&N's F&B unit in exchange for the 29% stake in FNN that Thai Bev holds, allowing Thai Bev to emerge as an Asean F&B mammoth. Expect synergies and cost savings, given the deeper and extended geographical penetration and broader product portfolio. ii) Thai Bev has a possibility of replacing FNN as an STI component stock, as early as Sep '13. Given that Thai Bev currently has no meaningful institutional shareholder representation, it bodes positively for stock demand if there is a subsequent rush by "benchmark-focused" funds to acquire exposure.