At Rp3.71 trillion ($416 million), this is the second largest IPO from Indonesia since the Asian financial crisis after Bank Rakyat IndonesiaÆs $484 million offering in 2003, according to Dealogic data. But while scarcity clearly did play a role in drawing attention to the deal, sources close to the offering say the demand wouldnÆt have been nearly as strong if investors hadnÆt recognised the companyÆs growth potential.
ôThe valuation was a bit of a stretch and the deal certainly wasnÆt cheap, but operationally it is a very good company and a lot of investors that were initially going to pass changed their mind after meeting with the management,ö one source says.
ôYou donÆt buy this for a punt or because you are bullish on Indonesia. You buy this because you understand the business and because you have confidence in the management and the strategy that they are going to deliver over the next three to five years,ö he adds.
As the roadshow progressed, much of the early price sensitivity was also ironed out and in the end the deal could have priced at the top of the Rp730 to Rp950 range. However, the company settled for Rp900 in an attempt to ensure a better aftermarket performance.
The international tranche, which accounted for two thirds of the total deal, was about four times covered at the final price and as much as seven times at the bottom of the range, the sources say. The total international order book contained more than 100 investors, but the allocation was narrowed down to no more than 55-65 accounts, they say. Among the buyers were high quality long-only global funds, as well as some hedge funds and private wealth management type investors.
Asia accounted for the bulk of the demand, but there were also good orders from Europe and significant demand from Middle Eastern investors, who are now clearly branching out from their earlier focus (in Asia) on property/infrastructure and financial companies. US investors were primarily represented through offshore global funds.
Deutsche Bank, Lehman Brothers and UBS were joint bookrunners for this portion of the deal, while Bhakti Securities and Danareksa Sekuritas will lead the domestic tranche which will be open for subscription between June 13 and 15.
The deal comprised 4.125 billion shares, of which two thirds were new and the remaining one third were sold by PT Global Mediacom, who held 100% of the listing candidate before the IPO. The total offering accounts for 30% of the enlarged share capital.
At the final price, MNC is valued at about 24-25 times its projected 2008 earnings, which compares with 21 times for the Indonesian market as a whole. However, the management was able to convince investors that its position in the market puts it in a prime position to benefit from the current strong growth in the Indonesian media sector.
ôThere is also projected to be very significant growth in the Indonesian advertising space, partly because the ad spend per capita is still low,ö says one observer.
MNC, which last year derived just over 95% of its consolidated revenues and virtually all of its earnings before interest, tax, depreciation and amortisation from its TV division, reaches across the entire spectrum of economic and age demographics in terms of its viewership.
ôThis has enabled us to attract advertisers who are seeking broad coverage for their products, as well as those who have more targeted markets,ö the company says in the listing document.
MNC owns and operates three free-to-air TV networks, including RCTI, which is the most popular free-to-air TV network in Indonesia with an average audience share of about 18.6% in 2006. Its three TV networks collectively captures about 34.9% of the countryÆs TV viewing audience and 32.6% of the total gross TV advertising spending, or ôad spend,ö according to AGB Nielsen Media Research.
In addition, the company publishes IndonesiaÆs third largest daily newspaper, Seputar Indonesia, and three tabloid magazines. It also owns and operates 15 radio stations, has operational and broadcasting control over another three and supplies content to two independently-owned ratio stations.
Last year it posted a 48.3% increase in revenues to Rp2.09 trillion ($232.4 million) and an 89.6% gain in Ebitda to Rp689.8 billion ($76.5 million). In the first quarter this year, revenues stood at $60.0 million, while Ebitda reached 20.4 million.
The Indonesian market has become more active over the past few weeks and the success of this offering could be the kicker that will reopen the countryÆs IPO market in terms of internationally marketed deals, one observer says. Certainly, there is a lot of demand for Indonesian paper among investors, and with the economy going strong and the rupiah on the rise, there are numerous reasons to look at this country again.
Another source agrees, noting that there has been ôan up-tick in risk taking in the regionö which is sparking renewed activity among companies looking for new capital in Indonesia as well as in other Asian emerging markets. And, according to bankers, there is definitely a pipeline of IPOs and equity follow-ons building in Indonesia again.
Last week, Indonesian palm oil producer Sampoerna Agro raised $122 million from the first Indonesian IPO to be marketed to foreign investors this year. Before this deal, which was brought to market by Credit Suisse and Danareksa, there had been only 13 IPOs in Indonesia with an international tranche since 2000, and only five of those were above $100 million in size, Dealogic data show.
MNC is due to start trading on the Jakarta Stock Exchange on June 22, while Sampoerna Agro's debut is scheduled for June 18.