Wednesday, 26 June 2019

Indonesia Capital Markets Deal

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Cikarang Listrindo’s Rp3.61trn (US$272m) Jakarta listing reopened the Indonesian market for major IPOs and gave investors exposure to a growing independent power producer with a hedge against the traditionally volatile rupiah.

The IPO priced in May, at a time when concerns over China’s economic slowdown were weighing on sentiment.

It was the first power producer to float on the IDX, opening the critical infrastructure sector to international institutional investors, and paved the way for other companies to follow with bigger deals.

Cikarang and its advisers set out on a comprehensive investor education programme to familiarise investors with the company and the sector.

The company did have a sound equity story, combining an attractive dividend yield with growth as more power plants come online and the longest track record of any private electricity supplier in Indonesia.

It is also the only listed Indonesian power company with tariffs indexed to US dollars and protected against inflation and fuel price increases.

Although it was still early in the year, bookrunners Citigroup, Deutsche Bank, IndoPremier Securities and UBS managed to convince investors to value the company on a 2017 multiple, since it was due to complete construction of a 280 megawatt coal power plant towards the end of 2016. That project was set to add about US$100m to 2017 earnings.

Cikarang brought in two global funds as anchor investors to subscribe to more than 50% of the base deal. In a rare move, Matthews International Capital Management allowed its name to be disclosed, helping drive momentum for the transaction even though there is no contractual lock-up period.

The IPO priced at Rp1,500, towards the low end of the Rp1,430–Rp1,970 range, but at a premium to regional peers. It comprised a base size of 2.4bn shares with an upsize option of 804m shares which was not exercised.

Around 100 investors participated, with 84% of the shares sold outside of Indonesia. Asian buyers accounted for 58% of the deal, with a quarter going to the US.

Long-only investors made up 57% of the book but were allocated 89% of the shares as hedge fund orders were scaled back. The top 10 investors got more than 75% of the deal.

The shares debuted 2.7% higher on the Indonesia Stock Exchange when trading started on June 14.

The deal successfully opened the market for bigger size IPOs. Three months after the Cikarang float, in August, state-owned pre-cast concrete maker Waskita Beton Precast sealed a Rp5.1trn IPO, the country’s largest float in six years.

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