Saratoga raises $151 million after lowering IPO price range

The Indonesian investment company attracts a small group of long-term investors amid a challenging market, while a number of other listing hopefuls are lining up.

Indonesian investment company Saratoga Investama Sedaya has completed its initial public offering, but only after re-launching the deal with a lower price range. It finally fixed the price at Rp5,500 — the bottom of the new range and 9.8% below the original offering price.

This led to a deal size of Rp1.492 trillion ($151 million), which was well below its initial target of $171 million to $219 million.

When the Asian order books closed at 6pm on Thursday last week, there was still a slight shortage of demand, but according to a source the deal did get just covered at the bottom of the range before the transaction wrapped up in Europe later that day. To allocate it at that level would have been a bit of a stretch though, so when a sovereign wealth fund that had been indicating an interest early on did finally show up with an order below the initial range, the issuer agreed to restructure the trade to make sure it could be included.

The deal re-launched with a new Rp5,500 to Rp5,600 range at 2.30pm Hong Kong time on Friday and closed at 5pm. The company, which is sometimes referred to as a private equity firm, was initially trying to sell the shares at a price between Rp6,100 and Rp7,800 each.

The demand was strong enough to allocate some of the greenshoe, sources said, but as of last night it wasn’t clear exactly how much. Initially, the greenshoe was meant to account for 15% of the base deal. It will be made up of all secondary shares.

Saratoga focuses on investments in early-stage and growth-stage companies, as well as special situation opportunities, but its investment horizon tends to be longer than the typical private equity fund. It does, for example, still own sizeable stakes in coal mining company Adaro Energy and telecom tower company Tower Bersama Infrastructure, which have been listed in Jakarta since 2008 and 2010 respectively.

As a result, the deal mainly attracted investors with a similar long-term mind-set, such as banks, insurance companies, sovereign wealth funds and big family office — accounts with money to invest in Indonesia that prefer not to cherry-pick stocks themselves.

An added challenge was the fact that many of the long-only funds and hedge funds that are regular investors in Asian IPOs view Saratoga as a competitor and hence decided to sit this one out. In all, fewer than 20 investors participated in the transaction and only three were hedge funds, the source said.

A key reason to invest in Saratoga — the first private equity-focused investment firm to list in Indonesia — was to get exposure to the listed companies in its portfolio at a discount to their market value and at the same time gain access to its unlisted assets. The latter include a 12.3% stake in power producer Medco Power Indonesia.

Saratoga’s current portfolio consists of 15 Indonesian companies, of which nine are listed. Its largest investments are the 16.4% stake in Adaro and the 30.2% holding in Tower Bersama, which together accounted for 74% of its book value at the end of last year, according to a preliminary listing document.

The company also owns 28.8% of Mitra Pinasthika Mustika (MPM), a distributor of Honda motorcycles and retailers of consumer auto parts that listed in Jakarta on May 29 after raising $150 million through an IPO.

That means there is a lot of overlap with companies that that investor can get exposure to already.

When the initial price range was set at the start of marketing on May 5, it valued Saratoga at a 0.5% to 22.2% pre-money discount to the combined net asset value of its listed portfolio companies. But the decline in MPM’s share price since its trading debut and the sell-off in Adaro since the start of the bookbuilding, meant the discount had narrowed quite significantly by the time the deal closed.

The reduced price range restored the discount to the initially intended levels — in fact it even widened it slightly as the final price of Rp5,500 per share translated into a discount to its current combined portfolio NAV of about 26%.

The recent sell-off in Asia’s equity markets was triggered by the correction in Japanese stocks and a growing belief that the Federal Reserve may end its quantitative easing and asset buy-back programme earlier than expected.

Indonesia’s benchmark index fell 6% while Saratoga was on the road, Adaro dropped 18.4% and MPM lost 10.7% versus its IPO price. Tower Bersama, which is a more defensive stock, held up a lot better and was down only 0.9%.

Saratoga sold 271.297 million shares, or 10% of its enlarged share capital. All the shares were new.

According to the listing document, it will use part of the proceeds to strengthen its balance sheet by repaying a $50 million loan. Most of the rest will go towards further investments, both in its existing portfolio companies and in potential new opportunities.

Among other things, Saratoga has agreed to buy an additional 16.7% in MPM from a number of shareholders for a total of Rp1 trillion ($101 million), which will increase its stake to 45.5%. It will use about $37.2 million of the IPO proceeds towards this acquisition, while the rest will be covered by a bank loan.

At the investor luncheon in Hong Kong, the management said that the capital raised through the IPO should be enough to cover its investments for the next two to three years — although that comment was made before the deal size was reduced from at least $171 million to $151 million.

In addition to the money raised, other reasons for the IPO, according to the company, are to strengthen its brand value and exposure in the market to help the management attract both investment opportunities and new talent; to create a new way to incentivise its employees and further align their interests with that of the company; and to exhibit leadership in corporate governance within the industry with the aim of encouraging others in the market to follow suit.

Prior to the IPO Saratoga was 100% owned by Edwin Soeryadjaya and Sandiaga Uno, who founded the company back in 1998, as well as their associates. They are well respected in Indonesia and also very well connected.

Uno is currently president director of the firm, while Soeryadjaya, whose father founded Indonesian conglomerate Astra International, is president commissioner.

At the end of last year, Saratoga had consolidated total assets of about $1.33 billion, which was up 37% from a year earlier. In 2012, its consolidated net revenues more than doubled to about $244 million, while net profit increased by 151% to about $198 million.

Deutsche Bank and UBS were the joint bookrunners for the IPO. The stock is scheduled to start trading by the end of June.

Despite the challenging markets, a steady stream of issuers is busy launching or preparing deals at the moment, with the aim of listing by the half-year mark. Companies that have drawn up their listing documents using 2012 year-end earnings basically need to get their deals on the road before then end of June or they face having to update their numbers, which typically means a delay of about three months.

Also in Indonesia, home electronics retailer Electronic City Indonesia is currently on the road with an IPO that is seeking to raise between $139 million and $185 million. The company is the largest in its industry in Indonesia with a market share of about 40% in terms of sales. It is selling 25% of its enlarged share capital in the form of 333.333 million new shares at a price between Rp4,050 and Rp5,400 each.

The price range translates into a price-to-earnings ratio of 21.5 to 28.7 times for 2013, or 12.6 to 16.8 times for 2014.

The roadshow started last Wednesday and the institutional order books are due to close this Thursday. Credit Suisse is the sole global coordinator and a joint bookrunner together with Danareksa Sekuritas.

In Hong Kong, bankers have started pre-marketing for New Century Real Estate Investment Trust, a hotel-focused trust that is being spun off from New Century Hotel Group, which is China’s biggest privately owned hotel chain operator.

It is seeking to raise $250 million to $300 million and will be the first Reit to list in Hong Kong in two years. It will have five hotels, all based in mainland China, in its initial portfolio.

New Century Hotel Group is backed by Carlyle, but the private equity firm will be selling down its proportional stake in the Reit through the IPO. It will own about 15.6% of New Century Reit at the time of the listing, according to a source.

Credit Suisse and Standard Chartered are joint bookrunners. They will continue to pre-market this week and will then make a decision whether to launch the deal on not.

Bankers will also start to pre-market a hospitality-focused Reit sponsored by Singapore-listed Overseas Union Enterprise (OUE) today. The deal may raise up to $800 million and is being brought to market by Credit Suisse, Goldman Sachs and Standard Chartered.

And in Malaysia, AirAsia’s low-cost long-haul arm AirAsia X is expected to launch the roadshow for its $250 million to $300 million IPO this week after close to a month of pre-marketing.

CIMB, Credit Suisse, Maybank and Morgan Stanley are joint global coordinators for the IPO, as well as joint bookrunners together with Barclays, BNP Paribas, Citi, CLSA and HSBC.

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