Indonesia divests entire Indocement stake

JPMorgan completes a $98 million placement for the government.

The Indonesian government eased its budget deficit figures yesterday (Thursday) following the sale of its remaining 13% stake in Indocement Tunggal Prakarsa. Coming on top of a 176% run up in the company's share price year-to-date, the government could hardly be faulted for the timing of its sale.

The lead manager's job was made slightly tricky, however by a difficult day for Asian equity markets. Following a weak performance in the US overnight, most Asian markets were down, with Jakarta falling just over 2% on the day.

This meant that a headline discount of 4.16% to the stock's Rp1,800 close on Wednesday was even more impressive than it first appeared. The lead had opened the book to catch London's afternoon on Wednesday and it closed lunchtime in Asia on Thursday three times oversubscribed.

About 30 investors participated in the 478 million share deal and about 85% were said to be new to the stock. Pricing was settled at Rp1,725, raising total proceeds of $98 million. By geography, the deal had a split of 60% Asia, 20% Europe, 20% US.

Despite the huge run up in Indocement's share price, most analysts still have a strong buy recommendation on the stock and this is now likely to be underpinned by a massive expansion in its free float. As a result of the deal, which represents 156 days trading volume, the free float has expanded from 8.4% to 21.4%.

The company's major shareholder is HeidelbergCement, which currently owns 61.25% of the company, but has agreed to purchase a further 3.9% at Rp2,462.49 per share at the end of this month. The other major shareholder is PT Mekar Perkasa, a Salim group affiliate.

Indocement represents Indonesia's second largest cement producer and is currently trading on a p/e ratio of about 12.2 times 2003 earnings compared to 18.8 times for Semen Gresik, the country's largest producer.

Analysts believe there is scope for the differential to narrow and say that a pick-up in property projects should benefit both companies. Since HeidelbergCement took over in 2001, the company has also made stride to improve its balance sheet and net gearing has fallen dramatically over the first nine months of the year. From a 178% level in September 2002, the ratio has fallen to 106% as of September 2003.

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