Adaro investors raise $150 million in a sell-down

Three existing investors yesterday teamed up to reduce their stake in Indonesian coal miner PT Adaro Energy, raising Rp1.5 billion ($150 million) in a placement launched and completed before the start of trading in Jakarta.

A total of 1.25 billion shares, representing 3.9% of the company, were sold. The shares were offered in a range between Rp1,230 and Rp1,260 per share, which translated to a discount of 8% to 10.2% versus Tuesday's closing price. The deal was priced at the bottom, at Rp1,230, with a corresponding discount of 10.2%. Adaro's share price fell 5.1% yesterday after the transaction.

The sellers were GIC Special Investment, Goldman Sachs and Noonday. Before the deal, the investors held a combined 17.3% stake in Adaro and this was reduced to 13.4% after the transaction. Since Goldman was one of the sellers, it was only natural that it was also the sole international bookrunner.

Adaro listed on the Jakarta exchange last summer following a $1.3 billion initial public offering, which was the largest Indonesian listing in 2008 and the second largest equity transaction in the country. Despite the scale of the deal, only around $200 million was open to public investors, since most of the shares were set aside for pre-IPO investors as part of a restructuring. Around 65% of this stock went to the company's management, while around 20% went to international pre-IPO investors.

Of the publicly offered shares, most went to domestic investors, while international presence was limited to a core group of long-term stakeholders. The end result was a highly illiquid stock, so the stake sold yesterday is equivalent to half of the company's free float.

Yesterday's trade was sold to around 40 international accounts, greatly increasing the number of small international shareholders. Most of the investors were long-only accounts with a view on the commodity cycle, while the liquidity dynamic was not so attractive to hedge funds. Around two-thirds of the demand originated from Asia, with good interest from the US and a few investors from Europe, said a source close to the deal.

The source said that the deal was attractive to investors partly due to the coordinated approach taken by the sellers, and also because sellers agreed to be bound by a 90-day lock up, suggesting that they retain an interest in the company's future.

Adaro mines coal in the Tanjung district of South Kalimantan Province where the government has given it rights to operate until 2022. Among its mines is the largest open pit coal mine in the southern hemisphere with reserves of 2.8 billion tonnes. The company has plans to double its 40 million tonnes of production capability over the next few years.

The company's share price took a terrible beating last year when the commodity bubble burst. Over the course of just four days' trading at the beginning of October, the share price lost 48% of its value. However, the stock has recovered significantly since the beginning of the year and now trades at around Rp1,300 a share, close to the Rp1,500 level where it traded last September.

In early April, when the stock was trading at around Rp880 a share, some analysts were calling on investors to take profit. Yesterday's sellers will be glad that they held their nerve.

Indonesia's equity markets have been quiet this year, with Bank Danamon Indonesia involved in the major deals. Two weeks ago, an unidentified shareholder sold $60 million worth of stock in the bank; and in April, the bank completed a $362 million rights issue.