Jardine-owned and Singapore-listed Cycle & Carriage (C&C) announced yesterday (Wednesday) that it has increased its ownership of Astra International from 31.14% to 34.31%. The announcement brings to completion one of the most important equity transactions in recent Indonesian history and in the end, one of the most successful.
The $158 million rights issue represents both the largest new equity capital raising by an Indonesian company since the financial crisis and the largest rights offering from the country on record. Prompted by a debt restructuring, which received creditor approval towards the end of December, completion of the deal should also now remove a major overhang from one of the stock exchange's most actively traded counters.
ING and JPMorgan were lead managers of the1.4 billion share deal, which was issued on the basis of seven new shares for every 13 held. Co-lead was UBS Warburg. Pricing was settled at Rp1,000, representing a 61.9% discount to the stock's spot close on December 17, or a 51.4% discount to the stock's theoretical ex-rights price.
Bankers say that 99.2% of the shares available for subscription were subscribed for, with excess applications from existing shareholders making up the balance. C&C subscribed for its proportionate rights entitlement of 437.44 million shares and for 10.09 million excess rights shares. In addition, the company also acquired an aggregate of 105.89 million nil-paid rights from Toyota Motor Corp and the market. In total, C&C acquired 39.4% of the rights issue shares.
This means that C&C remains the company's major shareholder, while Toyota Motor has seen its shareholding drop from roughly 7.4% to 5.5%. Other major shareholders are all said to have taken up their rights. Consequently, Norbax Inc, (a nominee company owned by US fund management group Capital) still owns 6%, Singapore government-owned GIC still owns 5% and the IFC 2.3% down from 5%.
Bankers add that one of the most interesting aspects of the transaction was the participation and renewed interest of foreign investors, who held about 60% of the company's stock pre-issue and about 80% post.
"This is the most widely held stock by foreign investors in Indonesia," one specialist comments. "Foreign investors were active buyers immediately before and after the issue. But, there was also a certain amount of trading activity in rights entitlements and these were changing hands at a very tight 5% discount to theoretical value, when normally you'd expect to see a 15% to 20% discount."
Bankers add that the stock (ex-rights adjusted) has outperformed the Jakarta Composite Index by 30% since the deal's announcement on December 17, closing yesterday at Rp2,400 per share. They believe the valuation expansion still has further to go. Pre-issue, Astra was trading on a P/E multiple of roughly two times 2003 projected earnings and is now at roughly four times. The market average, by contrast, stands at 7.4 times 2003.
In EV/EBITDA terms, the ratios are much closer, with Astra trading at 3.7 times 2003 earnings and the market at 3.8 times.
Proceeds from the deal are partially being used to re-pay debt and partially for working capital. During roadshows, company management indicated that they hope to initiate further debt buy-backs and may be in a position to start re-paying dividends. Assuming a dividend payout of 10% of 2002 net profit, this would equate to a 2% dividend yield, rising to 5% in 2004.
The company is also projecting that EBITDA will grow 12% during 2003, while net profit will triple because of the strengthening Rupiah. Astra's car components are priced in dollars and according to analysts, 90% of its liabilities are dollar linked.
Analysts have always said that the company's debt problems did not stem so much from the amount of debt it had on its books, but the maturity schedule. As a result of the debt restructuring, the company has been given an option to extend its Series II and Series III debt from 2006 to 2009. Series I debt has already been re-paid.
The deal effectively allows the company to reduce its annual payments by about 44%. Series II debt comprises $645 million in international debt and Rp703 billion in domestic debt, while Series III debt comprises $96.6 million in international debt and Rp99.47 billion in domestic debt.