Indonesian property developer PT Puradelta Lestari Tbk (Deltamas) restructured and priced its initial public offering at the bottom end of its marketed range on Friday in an acknowledgement of weak underlying markets.
The company got caught by the recent down draught buffeting the Indonesian equity market, but went ahead with the offering because it had previously cancelled a flotation in 2013 for exactly the same reasons. The deal might have been a success, had it come four to six months earlier when the market still had momentum.
In the end, Deltamas decided to re-size the deal from 20% to 10% of enlarged share capital in order to meet the minimum freefloat requirements on the Jakarta Stock Exchange. Pricing of a new 4.82 billion share transaction was fixed at Rp210, the bottom of a Rp210 to Rp350 range.
Proceeds amounted to Rp1.01 trillion ($78 million), far below the Rp3.8 trillion ($292 million) it had hoped to raise. There is no greenshoe.
One day ahead of the scheduled close, the syndicate had been faced with an order book, which was not quite fully subscribed and highly price sensitive at the bottom end of the range. Re-sizing it from 10.84 billion shares meant the 30-plus investors who still participated would not receive full allocations, which would have almost certainly sent the deal tumbling in the secondary market.
A re-sized and fully covered deal was therefore re-launched on Friday morning at a fixed price and closed around midday Asia time according to a term sheet seen by FinanceAsia.
Unsurprisingly, there was much stronger participation from domestic accounts, which took 75% of the deal compared to 25% international. About 80% of the domestic interest was said to be long-only funds with a tail comprising some private banking and hedge fund money.
Foreign investors have been net sellers of Indonesian equities every month since last August, with the exception of January and February this year. Aside from being put off by high valuations, many believe the market is likley to trade badly if and when the US starts to raise interest rates.
However, analysts note that foreign investors have turned net positive again so far this month. The Jakarta Composite Index has also re-bounded from its recent low of 5,086 on April 30 to 5,227 on May 15, up 2.7%.
Investors that purchased the Deltamas IPO are likely to believe they are getting in at the bottom just as the industrial property cycle is turning. Earlier this year, Kim Eng wrote a research report suggesting that industrial land sales bottomed out in 2014 in a five-year cycle, which began in 2010.
As supply of new industrial land dries up, developers with large land banks such as Deltamas should thrive. Roughly 47% of its land sales are in the industrial sector, with the rest retail and residential.
At Rp210 per share, its IPO has been priced at 7.5 times 2015 earnings and at a steep 70% discount to net asset value (NAV). This is in line with its nearest comparable, Bekasi Fajar Industrial Estate, which is trading at 9.7 times 2015 earnings and at a 64% discount to NAV.
Year-to-date, it has badly underperformed the market, dropping 27.4%.
Deltamas is larger than Bekasi Fajar with a 3,000-hectare development area, of which 1,800 hectares have already been developed and sold. Bekasi Fajar's has a 925-hectare landbank.
The company is developing its plot along a major tollroad in Bekasi, Greater Jakarta. Proceeds from the IPO are being used to develop the site and purchase more land in the area.
The company has previously said it hopes to acquire a further 500 hectares of land over the next three years.
Industrial land developers should also benefit from two key government moves. Firstly, it has stipulated that all new manufacturing enterprises have to be situated on industrial estates.
Secondly, it is trying to attract more FDI by streamlining the permit process. Instead of having to secure multiple permits, foreign investors can now use the integrated one-stop service at Indonesia's Investment Co-ordinating Board.
Deltamas has strong links to Japan thanks to the pre-IPO deal that gave general trading company Sojitz Corporation a 25% stake in the company. Pre-IPO, Singapore-listed Sinarmas Land owned 40%, with Fame Bridge Investments on 25%.
Listing is scheduled for May 29, following a retail offering from May 21 to May 25.
Domestic bookrunners are CLSA, Sinarmas Sekuritas and Macquarie. Joint bookrunners for the institutional tranche are Citigroup, CLSA, Macquarie and Nomura.