Deltamas kicks off IPO amid challenging market

The Indonesian industrial estate developer is seeking to raise up to $191 million and is offering its shares at a 60% discount to NAV.

Indonesia’s Puradelta Lestari, also known as Deltamas, has decided to go ahead and launch its initial public offering despite mixed feedback from investors and could well be the last deal of size to test the market before the traditionally slow month of August, when many fund managers tend to take their summer holidays.

The industrial estate developer needs money to fund the basic infrastructure, such as roads, electricity and water, as well as residential housing, parks and other common facilities on the land that it is then selling to various industries for development into factories. It is seeking to raise between Rp1.569 trillion and Rp1.952 trillion ($154 million to $191 million) and will officially open its institutional order books today.

The size is well below the $300 million that the company was said to be aiming for a couple of weeks ago, as the challenging market environment has forced it to lower its valuation expectations.

Sources said the feedback from international investors during the pre-marketing was positive with regard to the underlying assets, but they were asking for a sizeable discount versus other similar industrial estate developers and were also concerned about the sharp drop in the Indonesian rupiah in recent weeks.

The currency has weakened by 3.4% against the US dollar since early July and by 3.9% since the beginning of June and is showing few signs of stabilising. At the end of Asian trading yesterday the rupiah was quoted at 10,263 against the dollar, compared to 9,928 on July 1.

To help overcome these concerns, the company is offering the shares at a 50.4% to 60.2% discount to net asset value. This compares to a 35% to 40% discount for its closest competitor, Bekasi Fajar Industrial Estate, and a 40% to 50% discount for most other listed industrial estate developer in Indonesia.

One source said the bottom of the price range is cheap and is intended to work as a massive carrot that can be dangled in front of investors to bring them in. However, the NAV that is used as a reference is a joint estimate by the four banks running the deal and some say it is somewhat generous towards the company. According to the first source, the feedback from the pre-marketing was that investors wanted a discount of about 50% to 55%, while another said that some investors wanted to see a discount as wide as 65%.

Indonesia doesn’t allow the use of cornerstones, but the bookrunners are said to have demand indications from potential anchor investors for up to $50 million worth of shares and assuming that this does convert into actual orders early on, it could help generate the necessary momentum to get the deal done.

The recent trend in the Indonesian stock market has been positive with the benchmark index up eight days in a row before correcting slightly on Monday this week. The index is currently up 7.1% since July 9 and 9.3% since the start of the year. However, in US dollar terms, the year-to-date gain is no more than 2.7%.

Also, other listed industrial estates have seen their share prices fall significantly in the past two months. Bekasi Fajar is currently down 29% from its 2013 high in early May, but has rebounded from a trough of Rp620 on July 9 to yesterday's close of Rp730.

Deltamas is offering to sell approximately 7.65 billion new shares, or 15% of the enlarged share capital, at a price between Rp205 and Rp255 each. There is no overallotment option and the term sheet doesn’t note how much of the deal will be offered to institutional and retail investors, respectively.

The management roadshow, which will visit Jakarta, Singapore and Hong Kong, but not London, will run until August 1 and the final price is set to be determined the following day. The retail offering will be open from August 16 to 20 and the trading debut is scheduled for August 26.

The drawn-out schedule is typical for Indonesia, but adds quite a lot of market risk for investors, specifically in light of the recent movements in the rupiah.

The company is a subsidiary of Singapore-listed Sinarmas Land. Sojitz Corp, a Japanese conglomerate whose businesses range from machinery, energy and metals, to chemicals and consumer lifestyle, is a partner with a 25% stake before the IPO.

It owns about 3,000 hectares of industrial land along one of the major highways in the Greater Jakarta area, which it is in the process of developing into a self-sustaining industrial estate under the name of Kota Deltamas. According to one source, about 50% of the land will be occupied by actual industries and factories, 25% by retail outlets, schools, a hospital and other public spaces, and the remaining 25% by residential housing.

There are several other similar estates along the same highway, including Bekasi Fajar, and Indonesian investors are very familiar with the concept. Many of the estates count Japanese companies, particularly auto manufacturers, as their biggest clients.

Suzuki has already bought a piece of land in the Kota Deltamas estate and will be constructing a major plant there. In turn, this is expected to bring in a number of component suppliers and other related businesses as well as businesses catering to the workers at these plants. The source said that Deltamas recently sold another piece of land to a Japanese department store operator.

The attraction for investors is Deltamas’s large land bank, which is benefitting from the sharp increase in land prices in the past couple of years. There is also a limited amount of available land this close to the highway. The second source noted that Bekasi Fajar is located somewhat closer to downtown Jakarta (Deltamas is about 37 kilometres away), but doesn’t have as much land to sell.

The company will use about 60% of the IPO proceeds to fund infrastructure development at the estate and 20% for future land acquisitions, according to the term sheet. The remaining 20% will go towards general working capital.

Macquarie is the sole global coordinator for the transaction. Citi, Macquarie and Nomura are joint international bookrunners, while Macquarie and Sinarmas Sekuritas are joint domestic underwriters.

¬ Haymarket Media Limited. All rights reserved.
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