Gudang Garam block

Broad demand for small block in Indonesian cigarette maker

A surprisingly large number of investors submit orders as an undisclosed institutional investor sells $63 million of stock in Indonesia's Gudang Garam.
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Gudang Garam's main office in Kediri, East Java
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<div style="text-align: left;"> Gudang Garam's main office in Kediri, East Java </div>

The general view among bankers in recent weeks has been that investors are primarily interested in big, liquid names, so it is encouraging to see that some do have an appetite for small deals in less actively traded stocks as well. Of course, it doesn’t hurt when the company in question is based in Indonesia and exposed to domestic consumption — two themes that investors have remained relatively enthusiastic about this year while the European headwinds have stifled the more export-oriented sectors and countries in Asia.

Even so, the fact that more than 40 accounts were estimated to have submitted orders for a fixed-priced block trade of just Rp593.5 billion ($63 million) in Indonesian kretek (clove) cigarette maker Gudang Garam last night, suggests that fund managers are getting a bit more keen to put their cash to work.

The deal was about twice covered and, according to a source, the vast majority of the demand came from international investors, including some Asean funds and Indonesia specialists, and a few hedge funds.

Admittedly, Gudang Garam isn’t exactly a small-cap. In fact, it has a market cap of about $12 billion. But it is illiquid. While the deal accounted for less than 1% of the existing share capital, it represented about 14 days of trading, based on the daily average in the past 20 days.

The seller, which wasn’t disclosed but was described as an institutional investor that will still own shares in the cigarette maker after this trade, offered 10.5 million shares at Rp56,525 each. That translated into a 5% discount versus yesterday’s closing price of Rp59,500.

The stock has come off slightly from its more recent high of Rp62,000 at the end of June, but that is consistent with how it has traded for most of the year. It has been volatile, with sometimes huge swings from day to day, but at the same time it has held in a range between Rp51,000 and Rp63,000. Before the deal launched yesterday, the stock was down 4.1% since the beginning of January.

Goldman Sachs was the sole bookrunner.

Goldman also did a small block of about $41 million in Hong Kong-listed China Mengniu Dairy during the one-hour lunch break on Monday.

Given the limited time, that deal too was offered at a fixed price. However, a large anchor order from a long-only investor allowed for a very tight 0.7% discount versus the latest market price. The deal comprised 14.6 million shares, or about 0.8% of the company, and the price was HK$22. The seller was Xin Niu International, a company that holds stock on behalf of a group of mainly former employees.

Mengniu’s share price has remained well supported after the deal and while it dropped below the placement price yesterday, the stock still closed slightly above at HK$22.05.

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