PGN rounds off Indonesian privatization programme for 2004

Gas transmission and distribution company prices IPO towards the lower end of its indicative range after investors close their books for the year.

Perusahaan Gas Negara (PGN) priced its IPO yesterday (Wednesday) towards the lower end of its Rp1,300 to Rp2,100 price range, securing an issue price of Rp1,500 per share.

With ABN AMRO Rothschild, Credit Suisse First Boston and Danareksa Sekuritas as lead managers, the company raised Rp1.94 trillion ($229 million) on a base deal size of 1.296 billion shares. If a 194 million share greenshoe and a redshoe are exercised, the total deal size will be bumped up to Rp2.526 trillion ($297 million).

The institutional book is said to have closed just over three-and-a-half times covered, with momentum building strongly over the past two days following a lacklustre start. The first week of roadshows co-incided with a downturn in Asian equity markets and the order book subsequently failed to generate the kind of momentum that would carry it through a second week slowed down by public holidays in the US, Singapore and Indonesia.

"The frenzy which characterised new issues at the beginning of the autumn has dissipated," says one specialist. "Firstly the markets entered a correction at the beginning of November and secondly investors weren't keen to play. They feel they've had a good run this year and don't want to risk their existing returns during the last month."

The Jakarta Composite Index, for example, is up 51.517% year-to-date and closed yesterday at 643.86.

PGN's order book was consequently price sensitive and in order to allocate to tier 1 accounts, pricing was settled towards the lower end of the range. About 120 accounts participated in total, of which 26 came from Asia, 52 from Europe and 37 from the US.

In terms of demand, Asia accounted for 42%, Europe 37% and the US 21%. In terms of allocation, however, Asia was downsized to 21%, while Europe was increased to 43% and the US to 34%.

There were three orders for more than 10% and an allocation split, which saw tier 1 accounts take 51%, tier 2 11% and tier 3 29%.

The deal has a demand split between international and domestic investors of 70% and 30%, but is likely to settle with a 60/40 ratio once the retail offering is completed and if the two shoes are exercised. Both the greenshoe and redshoe comprise secondary shares and on the completion of the deal the government will drop from 100% to 51%, with the company raising 19% of the enlarged share capital in new equity.

Trading will begin on December 15. Alongside the leads, co-leads on the institutional tranche are CLSA and JPMorgan.

Specialists conclude that while the deal has not proved the runaway success of some of its predecessors, PGN has still been able to price at a premium to the Indonesian market and at a tight discount to regional energy peers.

At Rp1,500 per share, the company is valued on 2004 multiples of 6.4 times EV/EBITDA, 1.78 times price to book and 9.7 times P/E. By contrast, the Indonesian market averages a 2004 EV/EBITDA multiple of just over five times, while Thailand's PTT is currently trading at 7.16 times EV/EBITDA and 10.04 times P/E.

PGN will also command a slightly higher dividend yield than the market average of about 3.5% and at the issue share price will yield 4.11%.

PGN has a 91% market share of gas sales in Indonesia and analysts forecast a 68% increase in capex over the next five years as the company embarks on an ambitious expansion plan to meet growing demand. The company currently has 2,547KM of gas pipelines serving six separate distribution networks via three transmission pipelines.

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