Majority shareholder trims stake in Indocement

HeidelbergCement yesterday sold a 14.1% stake in Indonesia-based PT Indocement Tunggal Prakarsa through a placement that attracted interest primarily from long-only funds. The upsized deal, which raised Rp3.12 trillion (about $300 million), will reduce the stake held by the German cement manufacturer from 65.1% to 51% -- a level which it says it intends to keep for the foreseeable future.

While Indonesia is typically not one of the most active markets when it comes to placements or block trades, this was the second publicly marketed offering in just one week after three foreign investors teamed up to reduce their stake in coal miner PT Adaro Energy. That deal was completed last Wednesday and raised $150 million. The only other block trade this year was a small $60 million sell-down in Bank Danamon by an undisclosed institutional investor in May, although Bank Danamon has also completed a $362 million rights issue this year.

HeidelbergCement offered 400 million shares with an upsize option of 120.5 million shares, which was exercised in full, resulting in a total deal size of 520.5 million shares. Royal Bank of Scotland acted as the sole bookrunner.

The price range was set at Rp5,750 to Rp6,200 per share, which represented a 9.5% to 16.1% discount versus yesterday's close of Rp6,850. While this is quite wide compared with other recent Asian deals and the 10.2% discount on the Adaro trade, Indocement is a highly illiquid stock -- yesterday's trade accounted for a massive 320 days' worth of trading volume based on the six-month daily average -- and investors would have needed some additional compensation for that.

Demand was strong though and the final price was fixed in the upper half of the range at Rp6,000 for a discount of 12.4%.

According to a source, the deal attracted more than 40 investors and was 2.5 times covered after about three-and-a-half hours of bookbuilding. The buyers were almost entirely long-only funds, which may seem odd given the arbitrage opportunities offered by the wide discount. However, the source said hedge funds were most likely kept away by the illiquid nature of the stock.

About 46% of the demand came from Asia, while European investors accounted for 39% and US accounts for 15%.

Indocement's share price has had a strong run in recent months, gaining about 70% from the Rp4,000 level in early March. At the same time, the rupiah has strengthened, which means that, on a euro-basis, the share price has actually doubled. This may explain why HeidelbergCement was keen to monetise part of its holding.

The German company bought a majority stake in Indocement in 2001 following the Asian financial crisis and since then it has been helping the company to regain financial stability by refocusing on its core cement business. HeidelbergCement still regards Indonesia as a growing market. According to its website, the country's total cement consumption is one of the largest in Southeast Asia at 34 million tonnes per year, but on a per capita basis it's still one of the lowest in the world. Among the growth drivers, the property and construction sectors are supported by a series of interest rate reductions this year and should stimulate further demand for cement.

Indocement is the second largest cement manufacturer in Indonesia, with a total annual production capacity of 17.1 million tonnes, and the country's only producer of white cement. It operates 12 cement plants, including the Citeureup plant on West Java, which ranks as HeidelbergCement's biggest cement plant globally. In addition to cement, Indocement also makes ready-mixed concrete and mines aggregates.

In the first quarter of this year Indocement's net profit improved by 33% to Rp503 billion on a 7% increase in net revenues to Rp2.2 trillion.