Indonesia’s Deltamas pulls IPO

The industrial estate developer, which was initially seeking to raise at least $154 million, had been trying to find demand for a smaller and cheaper offering but has now decided not to proceed at this time.

After a week of trying to resurrect its initial public offering, Indonesia’s Puradelta Lestari has cancelled the deal, sources said Wednesday.

The industrial estate developer had been trying to raise between Rp1.569 trillion and Rp1.952 trillion (between $154 million and $191 million), but investor demand came up short after the valuation of its closest comparables fell sharply during the six-day bookbuilding.

Rather than immediately pull the deal, the company chose to postpone the pricing, which was due on August 2, to try to see if it could find enough demand if it reduced the deal size and the price.

One source said last week that a global long-only fund was willing to anchor the deal with an investment of about $30 million, but only if the price was reduced by at least 12% to Rp180 per share from the initial offering range between Rp205 and Rp255. While the Indonesian stock market was closed to celebrate the end of Ramadan last week, the joint bookrunners were trying to build an order book on the back of that, the source said.

In addition to lowering the price, the bookrunners also had the option of reducing the size of the deal to 10% of the enlarged share capital, which would still be enough to meet the minimum free-float required by the Indonesian regulators. Puradelta Lestari, which is also known as Deltamas after the name of its industrial estate, was previously aiming to sell 15%.

On Wednesday, sources said the deal will not be happening at this point in time, however. They offered no further explanation, but one of the sources noted that the tough market conditions meant it was not possible to put a deal together right now.

It is unclear, though, whether the company would have wanted to issue shares at a price of Rp180 even if there was sufficient demand as it would have meant a discount of as much as 65% versus the bookrunners’ estimated net asset value (NAV). The original price range translated into a discount to NAV of between 50.4% and 60.2%.

Also, Deltamas had already almost halved the deal size compared to the $300 million that it was aiming for when the investor education started in the first half of July. It needs money to fund the basic infrastructure, such as roads, electricity and water, as well as the construction of residential housing, parks and other common facilities on the industrial estate. The rest of the land will be sold to various industries for development into factories.

One of our sources has earlier said that Deltamas may need to seek alternative funding to cover the cost of the infrastructure development if the IPO could not be completed at this time. But yesterday a second source argued that the company is not in a particularly dire situation when it comes to money.

The fact that Deltamas chose to kick off the institutional bookbuilding on July 25 despite the challenging market and mixed feed-back from investors suggests that it was quite keen to get the deal done, however.

International investors were said to be positive with regard to the underlying assets, but were concerned about the sharp drop in the Indonesian rupiah in the weeks leading up to the deal. At the time of the launch, the currency had weakened by 3.4% against the US dollar since early July and by 3.9% since the beginning of June, increasing the risk of investments for overseas investors.

The rupiah has continued to depreciate, but the pace has slowed significantly. At the end of Asian trading Wednesday, it was quoted at 10,290 against the dollar, which is 0.3% weaker than the 10,263 that it was trading at on July 24. On July 1 the rupiah was quoted at 9,928.

But while the currency stabilised somewhat when Deltamas was in the market, there was a sharp sell-off in other Indonesian industrial estate developers. Bekasi Fajar Industrial Estate, which is viewed as the closest comparable, fell 16.4% during the bookbuilding, which meant that the attraction of Deltamas’s wider discount to NAV was reduced substantially.

And Bekasi Fajar has lost another 4.9% of its value since then. By comparison, the benchmark Jakarta Composite Index fell just 2% during the marketing of Deltamas and has gained 1.6% since the order books closed on August 1.

When the IPO launched, Bekasi Fajar was trading at a 35%-40% discount to NAV, while most of Indonesia’s other listed industrial estate developers were quoted at 40%-50% discounts, sources said at the time.

A second concern for investors was the drawn-out marketing schedule, which because of the closure due to Ramadan was unusually long. While the institutional offering ended on August 1, the stock wasn’t due to start trading until August 26.

Deltamas is a subsidiary of Singapore-listed Sinarmas Land. Sojitz Corp, a Japanese conglomerate whose businesses range from machinery, energy and metals, to chemicals and consumer lifestyle, is a partner with a 25% stake.

It owns about 3,000 hectares of industrial land along one of the major highways in the Greater Jakarta area, which it is in the process of developing into a self-sustaining industrial estate under the name of Kota Deltamas. According to one source, about 50% of the land will be occupied by actual industries and factories, 25% by retail outlets, schools, a hospital and other public spaces, and the remaining 25% by residential housing.

Japanese car and motorcycle manufacturer Suzuki has already bought a piece of land on the estate and will be constructing a major plant there. This is expected to bring in a number of component suppliers and other related businesses as well as businesses catering to the workers at these plants. A source said earlier that Deltamas has recently also sold another piece of land to a Japanese department store operator.

Macquarie was the sole global coordinator for the IPO. Citi, Macquarie and Nomura were joint international bookrunners, while Macquarie and Sinarmas Sekuritas were joint domestic underwriters.

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