Indonesia is set to welcome its first publicly listed power company after Cikarang Listrindo started pre-marketing for an initial public offering on Thursday.
Bankers familiar with the independent power producer's IPO said the total deal size could be around Rp4 trillion ($300 million) and will comprise both new shares and existing shares sold by a number of shareholders, including property developers Brasali Group and Pentakencana Pakarperdana.
Since Indonesia is not known for having a lot of sizable and internationally marketed IPOs each year, the listing -- tentatively expected in June -- will provide foreign investors with a rare opportunity to access the local primary market.
Mitra Keluarga’s $343 million share sale was the largest Indonesian IPO last year and the only one in the $100 million-plus category. Two other notable deals – Puradelta Lestari’s $78 million IPO and PT Kino’s $73 million offering – were largely domestic in nature.
The looming Cikarang Listrindo deal follows a gradual recovery in Indonesian equities, after President Joko Widodo in September delivered a series of economic reforms to improve public spending and encourage greater investment in social programmes and infrastructure. The benchmark Jakarta Composite Index has rallied 17% since then and is close to recovering the losses made last summer as China led a rout in global stock markets.
Citigroup, Deutsche Bank, UBS, and Indo Premier Securities are joint bookrunners on the IPO.
Indonesia’s supportive policies towards infrastructure investment could be favourable to Cikarang Listrindo, which has exclusive rights to provide electricity to five industrial estates in Cikarang, West Java.
UBS expects Cikarang Listrindo's net profit to grow at a compound annual growth rate of 19.8% between 2016 and 2018, mainly due to the contribution from a new coal-fired power plant.
The new plant is expected to complete in the second half of this year and will diversify its fuel mix. Currently it operates two gas-fired power plants with total installed capacity of 865 megawatts, which could increase to 1,145 megawatts after the completion of the new plant.
Due to the absence of any publicly listed power company in Indonesia, syndicate analysts have benchmarked Cikarang Listrindo against other independent power producers across the Asia-Pacific region.
Based on UBS’s fair value estimates of $1.82 billion to $2.77 billion, the business could be valued at 13.5 to 20.6 times 2017 earnings and 8.1 to 11 times enterprise value to Ebitda. In terms of valuation it will be richer than most of the other IPPs which are trading at sub-10 times earnings.
Almost all the IPPs with a similar market cap to Cikarang Listrindo are trading at a deep discount to its estimated fair value. For example, Malaysia’s YTL Power International trades at 9.1 times earnings and India’s JSW Energy trades at 8.2 times.
A source familiar with the deal told FinanceAsia that Cikarang Listrindo’s valuation premium could be justified by its stable revenue due to its exclusive power distribution rights, as well as its minimal exposure towards foreign exchange risk.
However, Cikarang Listrindo might not be the best pick for yield-play investors looking for defensive and income-generating assets in the short term. According to the terms of its 6.95% senior note due 2019, its dividend payout ratio is limited to a maximum of 50% until the note matures.
By comparison, most of the other utilities companies generally have a dividend payout of at least 70%.
In addition, the company has a relatively high funding cost in what is a capital-intensive business. Cikarang Listrindo is a high-yield credit according to both Standard & Poor’s and Moody’s, which rate the company BB- and Ba2, respectively.
Higher-rated PLN (BB+/BBB-/Baa3), for example, was able to pay a coupon of just 5.125% on a 10-year note in 2014.
