ABM Investama kicks off $215 million IPO with upsize option

The Indonesian coal mining and diversified energy company leads the way as a growing number of companies get ready to launch IPOs in Hong Kong.
<div style="text-align: left;">
Two-thirds of Investama's IPO funds raised will go to expanding mining operations
<div style="text-align: left;"> Two-thirds of Investama's IPO funds raised will go to expanding mining operations </div>


ABM Investama may have gotten an unexpected boost for its initial public offering yesterday when the Indonesian central bank cut interest rates by half a percentage point. Some economists had predicted that the bank would ease policy for the second month in a row, but none expected the cut to be more than 25 basis points.

The decision will help boost domestic demand at a time when the debt problems in Europe have spread to Italy and are causing renewed uncertainty about global growth. Stocks across Asia tumbled yesterday after a sell-off in Europe and the US the previous night and among the major markets only Thailand managed to close marginally higher. In Hong Kong, the Hang Seng Index lost 5.2% and Korea’s Kospi Index finished down 4.9%. Indonesia dropped 1.9%.

Europe finished down for a second day while US markets stemmed some of their losses last night, but volatility gauges remained high and no-one is arguing that the eurozone crisis is over.

ABM Investama, a diversified energy-related company with a growing presence in coal mining, launched a roadshow on Tuesday for an IPO that is seeking to raise between Rp1.34 trillion  and Rp1.92 trillion ($150 million to $215 million) from the base size offering. There is also an upsize option that amounts to 5% of the outstanding share capital and could increase the deal size from 15% to 20% of the company.

By splitting the offering into a base deal and an upsize option, the bookrunners were able to go out with a message to investors at launch saying the base deal is already covered by a combination of international and domestic investors. As proven by several other IPOs in the past couple of months, such reassurances can help increase the confidence of other investors quite substantially, which is important right now when most investors remain highly selective about which deals to look at. Most of the recent successful listings have had a large portion of their order books covered by the time they hit the market.

Any additional demand will go towards the upsize option. There is also a greenshoe that will amount to 10% of the final deal size. If both the upsize option and the shoe are exercised in full, the deal size would increase to between $220 million and $315 million, depending on where it is priced.

However, both the upsize option and the greenshoe are made up of secondary shares that will be sold by one of its existing shareholders, Tiara Marga Trakindo, which currently owns about 35%. That means AMB Investama itself can only raise up to $215 million.

Up to one-third of the money will be used to repay debt, while about two-thirds will go towards the expansion of its coal mining operations — a business that it entered into as recently as last year. The company is also involved in contract mining, integrated logistics, power solutions and engineering services. As of last year, 45% of its revenues came from contract mining, but the plan is for coal mining to become the largest part of its business in the future.

The diversification makes ABM Investama slightly different to the other listed Indonesian coal miners, but while it isn’t a pure-play coal mining company, most of its other businesses are also exposed to the coal sector.

Still, the bookrunners seem to be arguing that the diversification should warrant a higher valuation than for a pure-play coal mining company. Based on the indicated price range, ABM Investama is valued at 8.1 times to 11.2 times next year’s earnings, which compares with about nine times for the wider Indonesian coal mining universe. Indika Energy, which is seen as one of the closest comparables since it too is a bit more integrated, is currently trading at about seven to 7.5 times. However, analysts argue that there are a lot of differences between the two companies that are supposedly tilted in ABM Investama’s favour.

Atlas Resources, another Indonesian coal miner, raised $110 million from an IPO last month that was priced at 6.8 times next year’s earnings. The stock gained 2.7% on its first trading day on Tuesday, but has since succumbed to the negative trends in the broader market. Yesterday it closed 2.7% below the IPO price at Rp1,460.

ABM Investama’s base deal comprises 413.2 million new shares that are offered at a price between Rp3,250 and Rp4,650. If the upsize option is also exercised, the number of shares will increase to 550.6 million.

As of now, there is no defined split between domestic and international investors, but rather the entire deal is marketed as one transaction. The institutional marketing will finish in the US on November 16 and the final price is expected to be determined the following day. The trading debut is scheduled for December 6.

Bank Mandiri, Macquarie and Morgan Stanley are joint bookrunners.

Despite the difficult secondary markets, there is also a lot of primary market activity in Hong Kong right now. The key reason is that if a company wants to list before the Christmas holidays, it pretty much has to start pre-marketing next week, or the following week at the very latest. Before yesterday’s panic selling, there was talk of five to 10 companies starting to gauge investor demand on Monday, which is a large number when considering that there have only been six IPOs above $100 million since the beginning of September.

One of the larger deals that could potentially hit the market is Chow Tai Fook Jewellery, which has earlier been expected to raise up to $4 billion. The company, which is controlled by Hong Kong tycoon and New World Development chairman Cheng Yu Tung, was expected to obtain a listing approval from the Hong Kong stock exchange yesterday, but indications that the company is seeking a valuation of as high as 30 times next year’s earnings and the large size of the deal have thrown some doubt over whether the IPO is possible in the current market conditions. Deutsche Bank, Goldman Sachs, HSBC and J.P. Morgan are global coordinators for the offering, while Citi, Credit Suisse and UBS are joining them as joint bookrunners.

Two issuers that have already started pre-marketing are Baroque Japan, a retailer of women’s clothing, and Xinyi Solar Glass, which is being spun off from Hong Kong-listed Xinyi Glass. Bankers kicked off investor education for both companies on Wednesday this week and will decide next week whether there is enough interest to launch a formal roadshow.

Baroque Japan is seeking to raise about $100 million to $150 million and if successful will be only the second Japanese company to list in Hong Kong after internet-based financial services group SBI Holdings. The latter, which is also listed in Tokyo, went public in Hong Kong in April after raising $206 million through the sale of Hong Kong depositary receipts.

According to a source, Baroque Japan has chosen to list in Hong Kong because it expects a large portion of its future growth and business drivers to come from China. The company currently has 275 stores globally under various brand names, of which five are in China and another 23 in Hong Kong and Taiwan. CLSA and UBS are joint bookrunners for the offering.

Xinyi Glass got the go ahead from its shareholders for the spin-off of its solar glass unit at an extraordinary general meeting on Wednesday and chose to start marketing the deal immediately even though the solar power sector is not exactly in favour at the moment. Prices for solar power panels and other solar components have come down significantly this year, eating into margins and forcing producers to slash their earnings forecasts. As a direct result, valuations of the solar power companies have also fallen sharply.

In a reflection of this, Xinyi Solar is now only seeking to raise about $150 million, compared to hopes to pocket more than $450 million just a couple of months ago. The offering is led by Citi and J.P. Morgan. 

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media