Indonesian block trade

Tower Bersama block attracts strong demand, boosts free float

Three shareholders raise a combined $100 million from the sale of a 6.9% stake in the Indonesian telecom tower operator.
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Tower Bersama's infrastructure covers Java, Bali, Sumatra and Batam, and is expanding into Kalimantan and Sulawesi
<div style="text-align: left;"> Tower Bersama's infrastructure covers Java, Bali, Sumatra and Batam, and is expanding into Kalimantan and Sulawesi </div>

Three existing shareholders, including Indonesian private equity fund Saratoga Capital, last night raised a combined Rp913.5 billion ($100 million) from the sale of shares in Indonesia’s Tower Bersama Infrastructure, an owner and operator of telecom towers across Indonesia. The block saw strong demand both from international and domestic investors, and was priced at the top of the range for a tight 2.5% discount.

The deal looked well-timed as the share price has rallied 63% from its low point in late September and is currently trading close to the record high of Rp3,000 that it reached just days after the company’s listing in Jakarta in October 2010. However, a source said the primary purpose of the placement wasn’t to realise a profit, but to help increase the free float.

The stock has been quite illiquid since the listing with a free float of just 22% and yesterday’s block accounted for 60 days of trading volume based on the average daily turnover during the past month — or a massive 100 days if calculated over the past two months. The free float will increase to about 29% as a result of this sale.

Saratoga, which holds the Tower Bersama shares through a subsidiary called Saratoga Infrastruktur, is the company’s biggest shareholder with a 25.8% stake before this deal, according to Bloomberg data. The other sellers were an Indonesian company and an unidentified individual investor. There was no information about how many shares each of the sellers sold, but a source said they will all still own shares in the company after the transaction and will be subject to a three-month lock-up.

The sellers offered a combined 315 million shares, or a 6.9% stake in the company. The shares were marketed in a range between Rp2,825 and Rp2,900, which translated into a discount of 2.5% to 5% versus yesterday’s closing price of Rp2,975. The strong demand allowed the bookrunners to fix the price at the top of the range after about five hours of bookbuilding.

A source said the deal attracted about 40 investors overall, with particularly strong support from international investors. Most of the buyers were long-only accounts as hedge funds were deterred by the tight discount. Being a recurring cash-flow business that tends to pay high dividends, Tower Bersama also naturally attracts yield-focused funds. However, since the intention with the transaction was to increase the free float, the allocation didn’t necessarily favour buy-and-hold investors, the source said.

US investors are very familiar with telecom tower businesses as there are several similar companies in the US. However, Tower Bersama offers significantly quicker growth than US counterparts as it is expanding its portfolio to keep up with the growth in the number of mobile phone users in Indonesia.

In February, the company agreed to buy 2,500 telecom towers from mobile phone operator Indosat at a total cost of up to $519 million, payable partly in shares. Indosat will lease all the towers, as an anchor tenant, from Tower Bersama for at least 10 years.

The transaction is expected to be completed in the second quarter and will, according to Tower Bersama CEO Hardi Wijaya Liong, immediately result in higher revenue and Ebitda, as well as benefiting from even better economies of scale. It will also boost the number of telecom tower sites in Tower Bersama’s portfolio to 7,368. The number of tenancies will increase to more than 10,000 from just under 4,900 at the end of last year. In 2011, the number of sites and tenancies increased by 57% and 48%, respectively, mainly through organic growth.

Indosat will account for more than 25% of Tower Bersama’s revenue after the acquisition and Indonesia’s four biggest telecom operators will contribute more than 70%, Fitch noted in a statement affirming the company’s credit rating at BB. After the acquisition, the company’s average contract length will be 7.7 years, representing $1.5 billion of locked-in revenue, the ratings agency said.

Tower Bersama has attracted a lot of interest from international players ever since its listing and 72% of its Rp1.97 billion ($220 million) IPO in October 2010 was allocated to foreign investors. However, because of the low liquidity it has been difficult for large funds to buy shares in the open market in any significant size, which explains the strong interest in yesterday’s block trade.

That said, investors who bought shares in IPO at a price of Rp2,025 apiece had to watch the share price decline from the initial high shortly after listing to a low of Rp1,820 in September last year before it started to head higher again.

CLSA was the sole global coordinator for the transaction, as well as joint bookrunner together with UBS.

¬ Haymarket Media Limited. All rights reserved.
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