The government’s privatisation programme has stalled since the IPO of airline Garuda left domestic bookrunners stuck with unsold shares. Now that hurdle has finally been removed, hopes are high that the booming South-East Asian economy will become a major player in the regional equity markets.
Source: Reuters/Beawiharta Beawiharta
A woman uses her cellular phone near a banner of PT Garuda Indonesia in Jakarta
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The IPO last year of previously troubled flag carrier Garuda Indonesia should have been the triumphant ending to a complicated debt restructuring lasting several years.
Instead, the Indonesian minister for state-owned enterprises made the inexplicable decision to ignore the feedback from the price-discovery process and choose a price level at which there was demand for only about half of the IPO shares. Domestic bookrunners Bahana, Danareksa and Mandiri found themselves saddled with about 3bn unsold shares and were told they could not sell them below the IPO price – even after the stock tanked on debut and kept falling.
The combination of servicing the loans used to pay for the shares and the constraints on capital meant that Indonesia’s three big state-owned investment banks were limited in their ability to handle more large equity deals. Even though all three were public institutions, the government declined to step in and recapitalise them, leaving Bahana Securities, in particular, as an attractive takeover target.
Garuda, named after a mythical bird, has become something of an albatross for Indonesia’s state-divestment programme. Since the IPO, no sizable equity offering has launched..
However, since his appointment as minister for state-owned enterprises, Dahlan Iskan has brought the no-nonsense approach to his new job from his time as president director of state electricity firm Perusahaan Listrik Negara.
Within months of his arrival, the domestic bookrunners of the Garuda IPO had the selling ban lifted.
Indonesian businessman Chairul Tanjung, who is behind Bank Mega, is reported to have purchased a stake of 10.3% in Garuda for Rp1.4trn (US$153m), removing the overhang from the undersubscribed IPO.
Trans Airways, a unit of CT Corp, paid Rp620 per share to buy the 2.3bn shares that Bahana, Danareksa and Mandiri were left holding after the listing. This purchase was at a 3.3% premium to the April 11 closing price, but a 17.3% discount to the IPO price of Rp750 set in February 2011. Mandiri sold a further 0.6% stake on the open market.
This effectively cleared the way for the government to proceed with its outstanding divestment programme and for the three banks to restore their risk appetites.
The big deal on investors’ radar is the eventual privatisation of oil and gas giant Pertamina, but sources in Indonesia say the company requires extensive reorganisation before it is ready to list – although some subsidiaries, such as Pertamina Hulu Energi, may be spun off before then. No dates have been set, but no IPOs are expected from the group this year.
Meanwhile, the government has taken the first step to consolidate its state-owned oil-palm plantation businesses under a single holding company, Perkebunan Nusantara (PTPN) III, involving assets of Rp50trn. It may list the first of the units, PTPN VII, as early as this year.
It has also pushed ahead with the RFP process for two other smaller deals expected this year. Pawnshop operator Perum Pegadaian may do an IPO of up to Rp3trn, according to Indonesian bankers, while cement producer Semen Baturaja is also seeking bookrunners for a float of around Rp1trn. Airport operator Angkasa Pura II and port operator Pelindo II are also understood to be lining up for IPOs in the future.
Meanwhile, units of Garuda and listed steel producer Krakatau Steel are also set for listings. Low-cost carrier Citilink, aircraft maintenance unit GMF Aero Asia and caterer Aerowisata, as well as Krakatau Wajatama, which makes steel bars and wires, are expected to be IPO candidates in the next round of divestments.
Indonesia is still a hot favourite with foreign investors, but there has been little new equity issued this year for them to snap up. There has also been little to occupy Indonesia-focused equity bankers this year.
However, the government divestment prior to Garuda, the Rp2.7trn IPO of Krakatau Steel in November 2010, highlighted another peril for bookrunners of the new deals. Although the IPO was a success, closing nine times oversubscribed, bookrunners still found themselves the targets of criticism when the stock jumped 49% on the first day of trading. They were accused of deliberately under-pricing the shares, even though sources close to the deal said the price had been set to ensure good quality foreign participation. Regulator Bapepam fined the three domestic bookrunners for violating the allotment process, while five other members of the domestic underwriting syndicate also received penalties.
Bookrunners of the next wave of Indonesian state IPOs have a thin line to tread.
