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Monday, 22 April 2019

Finding the right price

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Many companies had hoped to emulate the success of a hugely popular offering of shares in Matahari Department Store in March. But the end to a prolonged market rally has left lofty price targets looking unrealistic.

A man searches for discounted clothes at a shop in Jakarta.

Source: Reuters/Crack Palinggi

A man searches for discounted clothes at a shop in Jakarta.

The spark that Matahari Department Store’s US$1.3bn deal was meant to provide Indonesia’s IPO market has turned into a dud. Investors have bailed on Indonesian stock offerings, spooked by a wave of global market volatility and pricey valuations.

The retreat from Jakarta by local and foreign funds is threatening other IPOs in the pipeline and hindering the ability of Indonesian tycoons to unlock money from their businesses.

Bankers and issuers were anticipating a record US$4.1bn worth of initial public offerings in 2013, including US$2.5bn in the first half of the year. The Matahari deal in March – in which private equity firm CVC Capital sold down its stake in Indonesia’s biggest stock sale since 2011 – was seen as a stage setter.

The outlook for the market still appears positive given Indonesia’s economic prospects. But in the last few months, Jakarta IPOs are being cut in half or abandoned altogether.

“People were thinking that they were sitting on a pile of gold,” said an investment banker who covers South-East Asia, referring to Indonesian equity deals. “The recent correction is making everybody’s expectations much more realistic.”

Indonesia’s leading shariah lender, Bank Muamalat, also postponed its up-to US$177m IPO because of recent stock market declines.

Muamalat had earlier dropped Credit Suisse and Deutsche Bank as advisers after an investor roadshow failed to generate strong interest, people familiar with the deal said. Spokeswomen for Credit Suisse and Deutsche Bank declined to comment.

And earlier this month, investment firm Saratoga Investama Sedaya raised less than half of the US$395m it was seeking, hurt by concerns about its lofty valuation.

“Our market is quite expensive,” said Fadlul Imansyah, an equity fund manager at Jakarta-based investment firm CIMB Niaga Asset Management. “Investors want a more reasonable price.”

IPO prospects

The gloom could hurt prospects for the planned listings of Lippo Group’s Siloam Hospitals, Indonesia’s biggest private healthcare operator, and Pembangunan Deltamas, the country’s largest industrial park. They are among firms seeking to raise a total US$1.6bn in the second half of 2013.

Indonesia’s main stock index has slid around 15% from a record high hit just a month ago and the rupiah has dropped sharply, as speculation that the US Federal Reserve will reduce its stimulus programme prompted foreign investors to pull money out of emerging markets.

Jerome Leleu, co-head of equity capital markets Asia Pacific at Morgan Stanley, said it was a temporary slowdown in the IPO market caused by global volatility and outflows from emerging economies in general.

The overall outlook remains strong given Indonesia’s attractive macroeconomic backdrop, but the window for issuers is small given presidential elections next year, he said.

“We are also getting into an election period for 2014 and that will create, by definition, some volatility in the domestic market,” he said. “For the IPO market, the challenge is more about timing than fundamentals.”

But the market has also been hit by concerns about high valuations that led to most Indonesian IPOs being priced at the bottom of their marketing ranges this year.

“People were thinking that they were sitting on a pile of gold.”

By contrast, neighbouring countries have seen a stream of strong offerings. The US$2.1bn IPO of infrastructure fund BTS Group Holdings in Thailand and the US$1.3bn Singapore IPO of Mapletree Greater China Commercial Trust both priced at the top of their ranges.

Saratoga’s case

Saratoga, controlled by local tycoons Edwin Soeryadjaya and Sandiaga Uno, had expected to raise US$395m in the nation’s biggest IPO since 2011, according to its prospectus.

Its original price range of Rp6,100–Rp7,800 per share offered no discount to its net asset value if it was priced at the top the range, reflecting huge confidence from the Soeryadjaya family that investors would buy the shares.

However, it was forced to cut the offering size to 10% from the original plan of 15% and revised down its IPO price range to Rp5,500–Rp5,600 per share, reflecting a 20% to 19% discount to the net asset value, according to calculations from the company’s prospectus.

In the end, it managed to raise only US$152m.

Among the IPOs next in line are those of Blue Bird Group, Indonesia’s biggest taxi operator, and budget airline Indonesia AirAsia, a unit of Malaysia’s Air Asia.

The Blue Bird IPO is seeking the same price-to-earnings ratio as consumer giant Unilever Indonesia. People briefed on the deal say reaching that valuation may be tough.

“I think the second half will very much depend on the global market and foreign inflows,” said Jemmy Paul, equity fund manager at Sucorinvest Asset Management in Jakarta. “I think the interest for IPOs will run out of steam if the market stays like this.”

To see the digital version of this report, please click here.

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