Atlas Resources raises $110 million from IPO

Indonesian coal miner Atlas Resources has raised Rp975 billion ($110 million) from its initial public offering after electing to sell only new shares and fixing the price at the bottom of the range at Rp1,500. The final size is towards the low end of the targeted deal size which, including a secondary share sale and an upsize option, could have been as large as $157 million.

The bookbuilding closed a week ago on October 18, but the price wasn’t released until yesterday.

The institutional portion of the deal, which accounted for more than 98%, attracted less than 20 investors and was primarily covered by corporate-type strategic investors, complemented by a few Indonesian and Southeast Asian institutional accounts. Several of the corporate buyers were signed up as anchors before launch, which suggests that the amount of incremental demand was quite modest. This clearly shows that issuers seeking to raise new capital now continue to have a difficult task on their hands, even if the secondary markets have had a more positive feel over the past couple of weeks. Investors are particularly concerned about the long lead time between the pricing of an IPO and the trading debut, which results in a lot of price risk – especially for untested names. As noted, Atlas closed its bookbuilding a week ago, but won’t start trading until November 9, which is another two weeks away.

There was no information on how well covered the deal was, but the fact that the bookrunners have allocated a greenshoe of only 28.349 million shares, or 4.4% of the base deal, suggests that there wasn’t a lot of excess demand. The buyers included Hong Kong-based and Singapore-listed supply chain manager and commodities trading firm Noble Group, which has a long-term relationship with Atlas as the primary buyer and marketing agent of its coal. However, according to a source, it didn’t take up the full $25 million worth of shares that was talked about early on during the bookbuilding.

According to the prospectus, Atlas will use $25 million of the IPO proceeds to pay Noble for its marketing services under a new marketing and coal supply agreement and it was initially said that Noble would use that money to buy shares in the IPO. However, even if it didn’t plough all of the money back into the company, Noble’s continued support for Atlas and its management was taken as a positive by other investors and may well have helped drag the IPO across the line.

The bookbuilding, which kicked off on October 7, also coincided with a recovery of Asian stock markets and of other Indonesian coal mining companies, which made Atlas’s valuation look relatively more attractive. The source said most of the institutional orders came in late, as the valuation gap widened. The Jakarta Composite Index hit a 2011 low on October 4, but by the time Atlas closed its books it had risen 5.2%. As of the close of trading yesterday, it was up another 2.3%.

At the bottom of the range, Atlas is valued at 6.8 times next year’s earnings and at a 2012 enterprise value-to-Ebitda multiple of 4.1, which at the beginning of the roadshow didn’t look particularly cheap. As of yesterday’s close, however, two of its closest comps — Adaro Energy and Singapore-listed Sakari Resources — were both trading at a premium. Adaro was quoted at a 2012 P/E ratio of 9.4 times and at an EV/Ebitda multiple of 4.2, while Sakari was quoted at 7.2 times next year’s earnings and at a 2012 EV/Ebitda multiple of 4.8.

Atlas initially targeted a base deal of up to $125 million, including $100 million of new shares and $25 million of secondary shares. It said it may sell up to 900.833 million shares as part of the base deal, but the final number of shares was to be adjusted to keep the base deal at $125 million.

As it were, the company scrapped the secondary portion altogether, but increased the primary portion to $110 million by using part of a $32 million upsize option of all new shares. Based on the final price of Rp1,500 per share, it will sell 650 million shares, which translates into 20% of the share capital. While below the minimum free-float requirement of 25%, apparently this is accepted since the company will still have a sufficient number of shareholders (which it achieved through the retail offering). The greenshoe, as required by Indonesian regulations, is made up of secondary shares that will be sold by controlling shareholder Andre Abdi.

The shares were offered at a price between Rp1,500 and Rp1,900 apiece.

Atlas produces thermal coal for power plants and earlier this year also started mining metallurgical coal (also known as coking coal) for steel production. It is a holding company for 19 coal mining exploration and production companies and currently owns the rights to 14 mining concession areas with a combined size of 185,000 hectares across Indonesia. It has also entered into agreements to buy two additional concessions.

It intends to continue to expand through the acquisition of new concession areas and relies on the expertise and track record of its controlling shareholders and its management team to identify early-stage concession areas that are rich in coal resources and possible to develop relatively quickly and cost efficiently.

So far, most of its coal has been exported to coal-fired power plants in South Korea, but according to the listing prospectus, Atlas has also begun to establish a reputation as a reliable producer of coal in Indonesia, China, Japan and Southeast Asia. It is also planning to expand into other markets in the region, including Vietnam, Thailand and India.

UBS was the sole global coordinator for the deal and joint bookrunner together with Indo Premier Securities.