Pulling off a sizable equity offering in a country where macroeconomic indicators and the currency are both pointing down is no mean feat. Not only that, HM Sampoerna’s Rp20trn (US$1.4bn) share placement also came with premium pricing, proving that Indonesian companies can actually benefit from meeting the country’s free-float rules.
Sampoerna, a subsidiary of Philip Morris, may be one of the country’s most attractive equity plays, but selling the deal was far from being a no-brainer.
Global investors turned cool to South-East Asia in 2015, and Indonesia suffered more than most, as a result of low commodity prices and a weak rupiah.
Still, a regulatory requirement that all Indonesia-listed companies should have a 7.5% free float as of January 2016 prompted Philip Morris to brave the market. It owned a 98.18% stake in Sampoerna, needing to sell at least 5.68% to meet the requirement.
The company was the first mover among the 15–20 that needed to float additional stock to meet the deadline.
To avoid the capital gains taxes that would have to be paid in an outright share sale, Philip Morris gave up its entitlement in a rights issue in September to trim its stake.
Sampoerna sold 269.7m shares in the rights offer on a 4-for-65 basis. Philip Morris then sold its rights entitlement through a follow-on offering, which was Indonesia’s largest equity issue in rupiah terms since 2008 and the largest South East follow-on during IFR’s review period.
The Indonesian company’s strong management, the defensive nature of the business and its likely entry into the local benchmark index made the stock a must-have for local and international investors and paved the way for a premium pricing.
Philip Morris sold 264.2m Sampoerna shares at the top of the Rp65,000–Rp77,000 price range.
The premium pricing came even though the stock had risen 7.8% since July, when news of the share sale first emerged. The benchmark Jakarta Composite Index was down 14% over the same period.
The placement price represented a multiple of 29x 2016 earnings. In comparison, emerging-market tobacco companies traded at an average of 18.4x earnings and Philip Morris at 16.9x.
The response from investors was strong and books were covered within a day of launch. Of the deal, international long-only investors took 47.4%, international hedge funds 7.2% and domestic investors – all long-only funds – 45.4%. The stock immediately won a global following, with 27.8% going elsewhere in Asia, 17.9% to the US and 8.9% to Europe and the Middle East.
Goldman Sachs and JP Morgan were global coordinators and the bookrunners with Credit Suisse, Citigroup and Mandiri.
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