Danamon delivers: but not to international equity investors

Busy day for Temasek as it swoops on Bank Danamon and sells a stake in SingTel.

The new Indonesian government's first foray into the equity markets got off to a bad start yesterday (November 4), with a poorly handled and confusing block sale in Bank Danamon. As a result of the divestment, Singapore government investment agency Temasek increased its stake from 62% to 72% and Indonesian investment agency, PT Perusahaan Pengelola Aset Negara (PPA), saw its stake drop from 20.5% to 10.5%. UBS and Danareksa handled the sale.

While Temasek will undoubtedly consider the result a success, this was not the scenario envisaged the night before when a fully marketed equity offering was launched after the stock market's close. At this point, the deal was still being sold as a 490 million share institutional equity deal with an indicative price range at a 3% to 6% discount to the closing price of Rp3,575. The leads went on to build a book with top tier investors and had it covered at a 2.8% discount by market close yesterday (Thursday).

At this point, however, it became clear that one investor, Temasek, had purchased the whole deal at Rp3,550, a 0.7% discount, paying Rp1.739 trillion ($189 million). Institutional investors that had put in clear offers and had them accepted, ended up with nothing.

While this transaction might maximize the returns for the selling shareholder, it may have cost it dear in terms of goodwill from the market. It seems strange to go through a whole marketed transaction only to then complete a block trade from one major shareholder to another.

Some believe that international investors were used to underwrite the transaction and establish the market price of the deal. Others, however, say the debacle speaks volume about a lack of co-ordination within the Indonesian government. Temasek is said to have been surprised to learn of the sale and immediately called up both leads to indicate its willingness to purchase the whole thing.

Observers conclude that the whole process was a complete "waste of time."

The deal has also not marked a good start for a new government with much to prove and assets to sell. Despite the fact that privatization is likely to become a less prominent feature of budget deficit financing than it has been in the past, the government has indicated it hopes to clear out its remaining banking stakes. These include a 5% stake in Bank Central Asia, a 21.5% sake in Bank Niaga and a 10% stake in Bank Mandiri.

Concurrent to its purchase in Indonesia, Temasek sold down 2% of its 64.7% stake in Singapore Telecommunications. With Morgan Stanley as lead manager, the group placed out 338.9 million shares at S$2.36 per share. This represented a 3.67% discount to the stock's S$2.45 close.

The deal followed the announcement of third quarter results.