Sell-down in Semen Gresik swells to $1.08 billion

The Rajawali group sells most of its stake in the Indonesian cement producer in a well-received fixed-price deal that is upsized by $285 million.

Close to a quarter of Semen Gresik's share capital changed hands in the early hours of yesterday morning as an investment company owned by the Rajawali group sold 95% of its shareholding in the Indonesian cement producer.

At Rp9.821 trillion ($1.08 billion), the deal is the largest ever block trade or follow-on from Indonesia, excluding rights issues, and it was also a huge transaction for the company. At the final size, it accounted for 23.7% of Semen Gresik's outstanding share capital and represented about 250 trading days.

Despite that, sole bookrunner J.P. Morgan offered the shares in the market at a fixed price of Rp7,000 per share, which represented a discount of only 6% versus Semen Gresik's closing price of Rp7,450 on Tuesday. And it got away with it.

According to a source, about 100 investors participated in the deal and, while there was no information about the size of the demand, the bookrunner was able to exercise the entire $285 million upsize option, increasing the deal size from about $798 million to $1.08 billion. Most of the investors were good quality long-only accounts, which is perhaps not too surprising as the tight discount and the illiquid nature of the stock would have made it unappealing to most hedge funds. However, some momentum players did submit orders towards the end of the bookbuild once it was clear how well the deal was going.

The interest can partly be explained by the fact that Semen Gresik is considered to be relatively inexpensive versus its peer group, but more importantly, it was also driven by strong investor confidence in Indonesia at the moment.

"[The success of the deal] is a vote of confidence in the government and in the political stability of Indonesia, and given the extensive build-out of infrastructure and Semen Gresik's role in that, this is a great way to get exposure to the country," one source said.

The Indonesian stock market is up about 10% this year, which makes it one of the best performers in the region, and investors have happily absorbed numerous deals in the primary market. Last week, the country's third largest mobile operator XL Axiata completed a $552 million follow-on that was priced at the top of the range and led to an increase in the free-float from 0.2% to 18.2%. Other issues this year have included convertible bonds for property developer Bakrieland and shipping company Berlian Laju Tanker.

Including the upsize option, the Rajawali group sold 1.403 billion shares through its holding company Blue Valley. It will still hold a 1.2% stake in the company, which according to the source, is reserved for the Indonesian government should it wish to buy it. If not, Blue Valley will be free to sell these shares to other investors at a later stage as well. The government currently owns 51% of Semen Gresik.

The block was launched after the Indonesian market closed on Tuesday and priced at the end of US trading 12 hours later. About 40% of the deal went to US-based investors, 35% to Asia (10% to Indonesia), and 25% to Europe.

The share price held up well in yesterday's trading, falling only 2% in a generally weak market. Of course, with the deal comprising only secondary shares, investors don't have to worry about dilution. Still, The Rajawali group had been a shareholder in Semen Gresik since 2006 and the fact that it is selling now, as the company is trading close to 12-month highs, could be a concern. However, the group is regarded as a financial investor and is said to be divesting its stake in order to deploy funds for investments in other sectors such as mining, property and agriculture.


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