Credence Trust, which was previously the largest shareholder in Delta Dunia Makmur, was able to sell the full 38% of the company that it was seeking to offload through a placement, resulting in an increase of the company's free-float to 55% from 17% before and a total deal size of $385 million.
Credence, which is owned by a private individual, was cashing out the majority of its holdings as part of Delta Dunia's transformation from a small-scale Indonesian property company to the country's second largest coal mining contractor. In its new guise, Delta Dunia will be 40% owned by private equity firm Northstar Pacific Partners, which essentially used the company as a vehicle for the backdoor listing of coal mining contractor PT Bukit Makmur Mandiri Utama, better known as Buma.
Delta Dunia agreed to buy 100% of Buma at a total acquisition cost of $550 million in August and a few weeks later revealed that it was acting together with Northstar. That deal and Northstar's acquisition of 40% of Delta Dunia for about $350 million, also from Credence, were both closed on Friday after the completion of the equity placement.
Credence Trust had offered to sell between 24% and 38% of Delta Dunia, depending on the level of interest, and was able to offload the entire amount, leaving it with only a token 5% stake in the company. According to sources, the deal was heavily oversubscribed by investors keen for a stake in what will become the country's largest pure-play coal mining contractor and 79% to 80% of the shares went to long-only funds. The enthusiasm has lasted even though the share price has gained 280% since the end of May, including 26.5% over two days in late August just after the acquisition of Buma was confirmed.
However, the 2.6 billion secondary shares were priced towards the bottom of the Rp1,350 to Rp1,700 price range at Rp1,400 per share, translating into a 26.3% discount versus last Tuesday's close of Rp1,900. The stock was suspended on Wednesday and Thursday to complete the transaction.
Given the fact that the company was in a state of transformation, most investors preferred to look at the valuation in relation to United Tractors, the listed owner of Indonesia's largest coal mining contractor, Pamapersada Nusantara (Pama). At the final price Delta Dunia came at a discount approaching 30% versus its larger rival, which is not a pure-play mining contractor but is also involved in the distribution of construction machinery. And two years ago it made a move into coal mine operations through the acquisition of a coal mine in South Kalimantan.
The share price fell 10.5% to Rp1,700 when the stock resumed trading on Friday, although this was not too bad given that it was weighed down by the crossing of the share placement at a price of Rp1,400 and Northstar's purchase of a 40% stake at Rp1,350 per share.
The involvement of Northstar, the Indonesian affiliate of Texas-based private equity firm TPG Capital, was key for the whole takeover as Delta Dunia is essentially a shell company that moved into property investments as recently as last year. Between its establishment in 1991 and 2008 its main business was textile manufacturing. Its 2008 revenues of $900,000 are dwarfed by the $662 million that Buma generated in the same year and it is questionable whether it would have been able to come up with the funds necessary to carry out the acquisition without the backing of the private equity firm.
Supported by the Northstar acquisition, Buma has recently raised $315 million from the sale of 11.75% five-year bonds through Barclays Capital, Deutsche Bank and ING and $285 million from a four-year loan arranged by Barclays Bank, which will be used partly to repay an outstanding loan from Sumitomo Mitsui Banking Corporation and partly lent on to Delta Dunia to enable it to buy out the existing Buma shareholders.
CLSA and Macquarie were joint global coordinators for the placement and also acted as joint bookrunners together with domestic banks Bahana and Danareksa.