The high demand allowed the company to fix the price at the top end of the indicated range of Rp2,300 to Rp2,950 per share, making Indika the first listing candidate of size in Asia do so since China Railway Construction CorporationÆs IPO in early March. The final price resulted in a total deal size of Rp2.76 trillion ($298 million).
The overall deal was 17 times covered, according to a statement by the company earlier this week, but sources say institutional investors topped that, asking for 19 times the number of shares eventually set aside for them. The coal producer met with about 180 international investors during the roadshow and the conversion ratio was said to have been above 80%.
The international tranche will account for about 77.5% of the total deal, while the rest will be split between domestic institutions and retail investors. Citi and Deutsche Bank were joint global coordinators for the deal and bookrunners for the international portion, while Danareksa Sekuritas, Indopremier Securities and Mandiri Sekuritas will arrange the domestic sale.
In contrast to most other Asian IPOs over the past couple of months, which have been forced to price either right at the bottom of their offering ranges or very close to it, IndikaÆs order book contained very little price sensitivity. A source said it attracted a mix of mining specialists and accounts focusing on Indonesia, as well as some value-oriented hedge funds û or in short, investors with a good understanding of the space in which the company operates.
ôIt is in the right sector. Coal companies both in China and Indonesia are gaining and coal prices are rising, setting a very positive backdrop for the transaction,ö the source says.
"Now is the right time for coal mining companies to let go their shares at an attractive price due to potentially large profits that may be obtained from rising commodity prices and increasing world demand for coal," Houston Jusuf, managing director of Danatama Makmur, said in a written statement issued earlier this week. Danatama is the bookrunner of rival coal producrer PT Adaro Energy, which is in the market with an IPO of its own.
Indika's Indonesian peers have been gaining on the back of expectations that strong demand for coal to fuel power plants will continue to underpin selling prices and earnings. Sector leader Bumi Resources rose 9.6% during IndikaÆs two-week roadshow, which ended last Friday, and was up 39% from the start of pre-marketing on April 15. Tambang Batubara Bukit Asam gained 13.5% during the roadshow and 33% if you include the pre-marketing period. This left them trading at 2009 price-to-earnings multiples of 12.1 and 13.7 times respectively. The final IPO price values Indika at 8 times its 2009 earnings, or at a discount of 34% to 42% versus its peers.
Investors say they prefer to look at valuations for 2009, because this is when increased production and high coal prices are expected to have a full impact on IndikaÆs earnings. Sales volumes from the companyÆs Kideco Jaya Agung mine are expected to increase at a compound annual growth rate of 8% over the next three years from 20.5 million tonnes last year. In the 1993-2007 period coal production grew at a CAGR of 21%. Sources say the majority of the IPO proceeds will go towards capital expenditures related to expansion, although a portion will be set aside for working capital.
Thermal coal prices at AustraliaÆs Newcastle port, which are viewed as a benchmark for Asia, reached a 13-week high of $138.35 per tonne last week, according to the globalCOAL NEWC index.
Investors viewed Indika primarily as a coal producer, but the company has grown significantly through mergers and acquisitions over the past three years and currently also owns 100% of the Tripatra group, which is an engineering, procurement and construction business focusing on the oil & gas industry, and a 20% stake in the 660MW Cirebon power plant. The coal-fired plant is however still under construction and isnÆt expected to contribute to earnings until it is finished in 2011. The Kideco Jaya Agung mine is expected to account for about 76% of pre-tax and pre-financing returns in 2009, compared with 17% for Tripatra.
Indika sold 18% of its enlarged share capital, or 937.3 million shares. Close to 89% of the deal was made up of new shares. A greenshoe of 104.1 million shares, or 11% of the base deal, could take total proceeds to as much as $332 million. The shares are expected to start trading in the second week of June.
The strong international interest for Indika should have been positive for Adaro, the holding company of IndonesiaÆs second largest coal producer Adaro Indonesia, which launched an IPO of about $1.3 billion on Monday. However, international investors will have only a very modest role û if any û in that deal. The bulk of the offering will go right back to the companyÆs pre-IPO investors as part of a group restructuring, and of the $195 million or so that sources say will be offered to public investors, the majority will go to domestic accounts. International investors will be allowed to submit orders as part of the domestic institutional offering, which will remain open until June 5, but sources say there will be no international roadshow and there isnÆt even an English version of the prospectus. The trading debut is expected in early July following a retail offering that will run from June 24 to 28.
Local investment bank Danatama Makmur is the sole bookrunner for the Adaro IPO, while the international banks û DBS, Morgan Stanley and UBS û are acting only as international placement agents and will not be involved in the marketing of the deal to potential investors.
Adaro will issue 11.14 billion new shares, corresponding to just under 35% of its enlarged share capital. The price range has been set at Rp1,050 to Rp1,125, which values the company at 7.5 to 8.3 times its projected 2009 earnings.
Through a subsidiary, Adaro operates the largest open pit coal mine in the southern hemisphere and has 928 million tonnes of coal reserves and 2.8 billion tonnes of resources. It is in the process of doubling its current production capacity of 40 million tonnes per year to 80 million tonnes over the next five years.
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