Hundreds of investors pile into XL Axiata re-IPO

The Indonesian mobile operator prices its secondary share sale at the top of the range for a total deal size of $552 million.

Indonesia's third largest mobile operator, XL Axiata, has attracted strong demand for its follow-on institutional share sale, allowing its Malaysian parent company to raise the maximum Rp5.049 trillion ($552 million) that it was targeting.

The deal is the largest follow-on in Indonesia since 2006 and the largest secondary share follow-on since 1996, bankers say.

The company said in a statement that the offering, which is viewed as a re-IPO on account of the significant boost to the free-float, was three to four times covered and, according to a source, it attracted 250-300 investors -- most of which were top quality.  

Indonesia has been attracting a lot of interest among international investors as one of the emerging markets that has come out of the financial crisis still growing at a healthy pace. Or, as one observer put it: "Indonesia is up there with the BRICs" (Brazil, Russia, India and China).

Investors also liked the fact that XL has been rapidly catching up to the number two player, Indosat, and is expected to continue to grow at a stronger pace. This meant that they were willing to accept a price at the top of the indicated range, even though this pitched XL at a premium to its two larger rivals. Indosat and PT Telekomunikasi Indonesia (Telkom) both fell during XL's one-week bookbuilding, which ended on Friday, making the offer relatively less attractive.

The final price translates into a 2010 enterprise value-to-Ebitda multiple of 5.8 and a price-to-earnings ratio for the same year of 18.9 times. By comparison, Indosat was trading at a 2010 EV/Ebitda multiple of 5.5 and a P/E multiple of 16.8 at the time of pricing after falling 6.5% in six days. Telkom was quoted at 12.4 times this year's earnings and the Indonesian market as a whole was valued at a 2010 P/E ratio of 15 times.

The offer comprised approximately 1.53 billion shares, or 18% of the share capital, plus a greenshoe that will account for an additional 1.8% of the share capital and which can be exercised during the first 30 days after the new shares start trading. All the shares were sold by Malaysia's Axiata Group, which owned 86.5% of XL before the deal.

The price was fixed at Rp3,300 after being offered in a range between Rp3,000 and Rp3,300, which, in a market where few IPOs are pricing at the top, is further testament to XL's strong equity story.

The source noted that about 75% of the demand came from long-only accounts and said the order amount was split roughly equally between the US, Europe and Asia. The Asian demand included qualified institutional buyers (QIBs) in both Malaysia and Indonesia, although a detailed breakdown was not available.

For most institutional investors, this was the first opportunity they had to invest in XL, which until now has had a miniscule free-float of just 0.2%. Aside from the stake held by Axiata Group, another 13.3% was held by Etisalat, a telecom operator based in the United Arab Emirates. Following this transaction, the free-float will increase to 18.2% and, if the greenshoe is exercised as well, it will go to 20%.

"The marked improvement in free-float is a significant milestone for XL, particularly as the offering has also allowed for the development and broadening of our investor base," said Hasnul Suhaimi, the president director of XL, in a written statement. "With the continued support by Axiata, we intend to build on this success to further attract investor interest in our company."

Goldman Sachs was the sole global coordinator for the offering and joint bookrunner together with CIMB.

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