Indonesian companies raise $990 million from IPOs

Demand remains strong for Indonesian stocks as evidenced by the initial public offerings for Indofood CBP and Harum Energy which both priced on Friday last week and together raised $990 million.

Investors liked Indofood CBP for its dominant position in the domestic Indonesian market for instant noodles and, according to sources, submitted orders for several times the deal size, even though some observers argued that it didn’t come cheap. Meanwhile, Harum, a coal producer, has entered a crowded market with seven coal producers or contractors already listed in Indonesia. But its four-decade track record and clean ownership structure appealed to investors and the deal more than three times covered.

Indofood CBP

Despite the strong demand -- nearly 400 institutional investors submitted orders and almost all of them at strike -- Indofood refrained from pricing its offering at the top of the range, with sources saying that the company was keen for the stock to trade well in the secondary market. Supposedly the company also had a fundraising target that was met at the final price and hence it could afford to be a bit generous. The final price was set at Rp5,395, which resulted in a total deal size of Rp6.29 trillion ($700 million). The shares were offered in a range between Rp4,300 and Rp5,500.

At $700 million this is the largest IPO in Indonesia since coal miner Adaro raised $1.3 billion in June 2008. However, about 85% of that deal went to a group of international pre-IPO investors as part of a group restructuring. Of the remaining portion, the majority was bought by domestic accounts. Aside from Adaro, there have been no other Indonesian IPOs above $1 billion since 1994-1995 when Indonesian Satellite Corp (Indosat) and Telekomunikasi Indonesia raised $1.16 billion and $1.68 billion respectively, based on the exchange rates at the time.

According to one source, the deal attracted good participation from long-only investors who saw the large size as a promise that the stock will be liquid – especially since 90% of the deal went to international accounts. “If you want exposure to Indonesia, this is almost a must-have deal,” the source said.

The orders at the top of the book were chunky, suggesting some of the large funds who liked the stock wanted a significant position.

The interest was no doubt helped by the continuous rise of the Indonesian stockmarket. The Jakarta composite index hit a new record high of 3,384 points on Friday when the pricing of these two deals was announced and its 33.6% gain (as of Friday) makes it the best performing stockmarket in Asia year-to-date, just ahead of the Philippines on 30.4%. Hong Kong has been virtually flat, while Korea and Singapore are both up less than 10%. Japan and China are still down. The Jakarta index rallied 9.8% during Indofood CBP’s international roadshow, which kicked off on September 1 – even though the market was closed for five days during Ramadan. Harum started its marketing to international investors a day later.

Indofood also had extra help as its Jakarta-listed parent company, Indofood Sukses Makmur, gained 12% during the marketing of Indofood CBP (consumer branded products), suggesting that the spin-off was indeed releasing hidden value. Indofood CBP comprises the production and marketing of the group’s consumer branded items, including noodles, dairy products, food seasonings, snack foods and nutritional products. The parent was looking to spin off the unit at a premium to its own valuation but, as its share price headed higher, the gap between the two shrunk, making the listing candidate seem relatively cheap.

At the IPO price, Indofood CBP is valued at about 18.8 times its projected earnings for 2011, based on the joint bookrunner consensus, which compares with a 2011 price-to-earnings multiple of 16.5 for its parent. Two weeks ago, the latter traded at a P/E multiple of about 14.

Impressively, the IPO also managed to unlock value further up the ownership chain with Hong Kong-listed investment company First Pacific, which owns 50.5% of Indofood Sukses Makmur, advancing 4.7% during the roadshow.

Indofood CBP sold 20% of its enlarged share capital in the form of approximately 1.166 billion shares, which was the maximum number it could sell, according to the prospectus. The deal was arranged by Credit Suisse, Deutsche Bank and Kim Eng Securities, with Bank Mandiri handling the domestic tranche.

Harum Energy

Harum, which is owned by the Tanito family, saw a fair amount of price sensitivity in its IPO and priced towards the low end of the price range at Rp5,200 per share for a total deal size of Rp2.6 trillion ($290 million). The shares were offered in a range between Rp5,000 and Rp6,300. The issuer also refrained from exercising the upsize option of 150 million shares, sticking with the base deal size of 500 million new shares, or 20% of the share capital. However, the deal still has a 10% overallotment option that could increase the final proceeds to as much as $319 million after it starts trading.

While the price range was clearly very wide, orders were concentrated at the bottom end, which translated into a valuation that was on par with its Indonesian coal mining peers. This was especially true on an enterprise value-to-Ebitda basis, with Harum pricing at a 2010 multiple of 8.9 to 9.3 (depending on whose earnings forecasts one believes) compared to an average valuation of 8.9 times for its peers. On 2011 figures, Harum came at an enterprise value of 5.1 to 5.2 times its projected Ebitda, versus 5.3 times for its peers.

On a 2011 price-to-earnings basis it looked slightly cheaper at 7.6 times, compared with 10.3 times for the Indonesian coal mining sector as a whole.

Even so, the deal attracted close to 200 investors, including some high-quality institutions and mining specialists. Some of these came in early as anchor investors, which gave momentum to the bookbuild. About 60% of the demand came from international investors, sources said, and the allocation was skewed even further, leaving about 70% of the deal in the hands of international accounts.

The fact that Harum has been in operation for decades, as opposed to five to 10 years as is the case for many of the country’s coal miners, and has a highly experienced management team, drew investors to the deal, said one source. Harum is the country’s sixth largest producer of bituminous coal which is primarily used as fuel for power generation.