Panin brings some life to the market

Investors snap up a rare share placement from the Indonesian private sector.

Panin Insurance yesterday priced a 2.9 billion share placement in its subsidiary Panin Life, selling 24.2% of the company's existing issued share capital. The deal was priced at RP160 a share, a 5.9% discount to the closing price of Rp170 a share on Wednesday. The deal raised Rp464 billion ($50.2 million).

The deal in many ways represents an IPO rather than a secondary trade. With little under 23% of the company in free float before the sale, the company was very illiquid. But now the shares listed on the public markets have now doubled to around 47% of the company. Indeed, given the scope of the offering, the sale was conducted like an IPO with global coordinator and bookrunner CLSA, taking the company on a global roadshow that encompassed Singapore, London, New York and Boston.

Final allocations saw Europe take 45% of the deal, the US under Rule144A take 37% and Asia the remaining 18%. The book was said to be three times covered by 30 accounts after more than 60 investors meetings.

Panin Life has enjoyed spectacular growth in recent years. Its total revenues stood at Rp531.2 billion for 2003, an increase of 474% since 1999, with average growth of the last two years of 78.8%. However almost 95% of those revenues came from dividend payments from its holding of 42% of Panin Bank. However due to the illiquidity of the Panin Life shares, they were trading at a 35% discount to the book value of Panin Bank.

Panin Insurance therefore knew that if it were to increase the value of its holdings in Panin Life, it would need to give the stock more liquidity so as to close the gap with the valuation of Panin Bank.

Nevertheless, the company has been building up its life business, now being the fourth largest life insurance company in Indonesia. However, life premia still only contribute about 5% of the company's annual revenue, although this is expected to rise to 25% in three years time. From a valuation perspective, this made the sale of the company much easier, as investors did not have to work out complex embedded value multiples, rather they could just price it against the book value of Panin Bank.

At Rp170 a share, the company is trading at a price to earnings ratio of 12.78 times, well below the average of the Jakarta Stock Exchange index of around 16 times, further adding to its appeal.

The deal was priced at 6pm New York time on Wednesday night, which gave the book runner just two hours to do the allocations before trading started at 8am in Asia on Thursday. The shares were then crossed during the day on Thursday.

Interestingly, the price of Panin Life's shares held up remarkably during the week leading up to the sale, when the company was on the road, meeting hedge funds. Either it is a testament to the illiquidity of the stock that there was no stock to sell, or the global coordinator was doing such a good sales job that most of the selling pressure had been removed from the market.

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