Indonesia divests BCA stake

Government achieves premium pricing for equity divestment.

The Indonesian government sold its remaining 5.02% stake in Bank Central Asia (BCA) yesterday (September 21), raising Rp219 trillion ($214 million) from the Bahana Securities and Deutsche Bank led deal. Completion of the transaction means the government has been able to secure premium pricing via its unusual execution method for the second time this year.

As usual, the lead did not know the government's floor price until after it had built an order book. However, unlike March, when the government pulled a CLSA led deal, the new 618.24 million share offering hit the required floor price.

Having gone out with a range between a 2% discount and a 6% premium to the stock's Rp3,475 close on Tuesday, the lead was able to price it at a 2% premium. This equated to a price of Rp3,550 per share.

At this level the book is said to have closed about 1.25 times covered, with participation from about 25 accounts. About 99.7% of accounts were international of which 90% were Asian and roughly 10% offshore US. Specialists also believe that more than 90% already held the stock.

No investor is said to have expressed concern about BCA's current valuation. However, a number did express fears about Indonesia's macro outlook and the impact high oil prices are having on the economy.

Against this backdrop, premium pricing was quite an achievement. So too, the Jakarta Stock Exchange fell 1.1% yesterday, thanks to renewed currency weakness and reports about a new outbreak of bird flu.

Yet ironically the government would probably have netted additional proceeds to bridge its budget deficit had it completed the original deal in March. At that point, CLSA built an order book on a range of Rp3,400 to Rp3,700, only to find that the government had set a floor price of Rp3,800.

At its current level of Rp3,550 per share, BCA is trading at about 9.5 times 2006 earnings. Analysts still have a pretty positive view on the stock despite the fact that it has returned 74.33% on a one-year basis and 16.81% year-to-date.

A number believe the bank should still achieve EPS expansion in the mid 20% range this year despite a recent 500bp hike in the government's reserve requirement.

The deal also represents a good result for Deutsche given it is the first to be launched under the aegis of its new joint-venture, majority owned by local employees.

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