Private equity groups Carlyle and PT Kharisma Indah Ekaprima retreated from a Rp3.285 billion to Rp3.91 billion ($255 million to $303 million) divestment in Indonesian tower operator PT Solusi Tunas Pratama on Monday after struggling with falling stock markets and a volatile share price.
The company made an announcement to the stock exchange the day the deal was scheduled to price.
The transaction's demise was not that much of a shock given the market backdrop. More of a surprise was the decision to plough ahead in the first place, with the order book opening on April 29 when the Indonesian market looked like it was in a rout.
The Jakarta Composite Index had begun falling one week earlier following a spate of negative first quarter earnings announcements and poor macro-economic figures. It fell 9.3% between April 22 and April 30, although it has plateaued over the past few trading days.
This was not a conducive environment to generate momentum for a deal, which was never that straightforward a sell in the first place. The decision to postpone was, therefore, a sensible one, notwithstanding the fact the order book is said to have closed just covered.
Had the vendors decided to go ahead, the combination of tepid demand and such an enormous deal size relative to Solusi's average daily trading volume would have put the stock price under enormous pressure.
This is because the 312.82 million secondary share deal was effectively a re-IPO even though 31.3% of the shares are already in freefloat. Solusi only trades about US$50,000 per day, which means the new deal represented an enormous 5,100 trading days.
Part of the rationale behind the deal was to increase the stock's liquidity, boosting the freefloat to 58.5%. Lifting the freefloat above 50% also meant the company would have been able to take advantage of a 5% tax discount.
Carlyle planned to reduce its stake from 25.5% to 15.3% while PT Kharisma would have dropped from 43.2% to 25.9%.
Share price volatility
Yet while the stock does not trade that actively, it has been volatile and this put some fund managers off.
One Asian specialist told FinanceAsia, "Private equity vendors don't have a reputation for leaving any money on the table for investors at the best of times. I also didn't like the fact that this stock spiked so much shortly before the deal was announced in March."
Between January 20 and March 17, it rose 40.7% and then a further 25% between April 8 and April 16. The second spike can probably be attributed to the renewed focus on Solusi, which did not have much research coverage up until that point.
At the time, Danareksa thought the new deal would be a success. In a research note published on March 25, it suggested it would provide a re-rating catalyst given that Solusi had been trading at a discount to comparables such as Tower Bersama Infrastructure Group (TPIG) and Sarana Menara.
The deal was marketed at Rp10,500 to Rp12,500 per share, which represented a consensus EV/Ebitda multiple of 11.7 to 13.1 times on a 2015 basis.
At Monday's close, TPIG was trading at 14.6 times EV/Ebitda and is down 8.3% year-to-date. Sarana Merana is trading at 12.3 times and is down 4.3% over the same period.
Solusi is Indonesia's third largest tower operator, but has been growing quickly in part thanks to its acquisition of tower assets from XL Axiata. This enabled the group to expand its portfolio from 2,798 towers in 2013 to 6,651 by the end of 2014.
Its recent year-end results showed Ebitda up 28% year-on-year to Rp888 billion, resulting in an Ebitda margin of 82.9%
The postponement of its equity offering follows a similarly weak reception to a Rp908.78 billion ($70 million) IPO for PT PP Properti, which priced at the bottom of its range last week.
In a recent research report, Credit Suisse suggested the Indonesian government has a difficult job on its hands trying to revive GDP. It said it was difficult for the central bank to cut interest rates until it becomes clear whether the Federal Reserve will start raising them in the US.
Instead, it believes the government is likely to cut banks' reserve requirement ratios, or loosen loan to value ratios across the property and auto sector in order to get money flowing through the economy again.
However, the Swiss bank is more positive on the stock market. While it says that valuations are still high, it argues that Indonesia is better placed than other Asean nations on similar multiples.
"The redeeming factor for Indonesia is that ROE's are also high and have been sustainably higher than other Asean countries for over a decade," it wrote on April 23. "On top of that, these ROE's are generated by using one of the lowest balance sheet leverages in Asia."
Joint lead managers for Solusi's deal were CIMB, Deutsche Bank and JP Morgan. CLSA was a manager and Ciptadena a domestic manager.
This article has been corrected to change the name of one of the vendors from Southern Capital to PT Kharisma Indah Ekaprima