BW Plantation raises $70 million in Indonesian IPO

BW Plantation looks set to become the first company of reasonable size to list in Indonesia in more than a year after raising Rp666.1 billion ($70 million) from an initial public offering -- more than this year's four other newcomers combined. The palm oil producer is also the first Indonesian company to market an IPO to international investors this year, offering an alternative to the multitude of sector peers that are already listed in Jakarta and Kuala Lumpur. BW Plantation is scheduled to start trading in Jakarta on October 27.

According to a source, the Reg-S deal was about four times covered overall and attracted more than 30 accounts. There were no definitive tranches before launch, but the institutional portion is likely to account for about 90% of the total offering. The company will run a separate offering for local retail investors on October 20-21. Most of the international demand came from Asia, specifically Hong Kong and Singapore, while European investors -- the management met with investors in London, Frankfurt and Amsterdam -- remained cautious following the sharp drop in secondary market trading by several Hong Kong IPOs, which coincided with BW Plantation's roadshow.

To draw conclusions about Indonesian IPOs from what is going on in Hong Kong's crowded IPO market seems slightly odd, particularly since Indonesia has a scarcity of share offerings that allow international investors a chance to get a meaningful position. The source noted that Asian investors were able to separate the two markets from one another. Demand from domestic Indonesian institutions was also quite strong and this helped drive the bookbuilding early on. When the books closed on Monday, however, the international demand outweighed the domestic order amount by about three to two.

BW Plantation sold approximately 1.21 billion shares, of which 74.1% were new. The remainder were existing shares sold by two entities that count as part of the Widodo family which founded the company in 1997.

The shares were offered in a wide price range of Rp525 to Rp750 and priced close to the bottom at Rp550. At the final price, BW Plantation is valued at about nine times its 2010 projected earnings, on a fully diluted basis, which puts it at a discount of close to 20% versus an average 2010 price-to-earnings multiple of about 11 for other Indonesian oil palm companies. One source argued that when it comes to yield and margins, BW Plantation compares well with a company like Astra Agro, which trades at about 13.5 times, although the latter is much larger and more liquid. Other small palm oil producers, including Bakrie Sumatra Plantations and Sampoerna Agri, which have a similar market capitalisation to BW Plantation but arguably not as good a yield, also trade at around nine times forward earnings.

The number of shares on offer accounted for 30% of the enlarged share capital. There is also a 5% greenshoe that could boost total proceeds closer to $75 million. BNP Paribas acted as the sole global coordinator, underwriter and international selling agent, as well as joint lead manager together with Indonesian investment bank Danareksa.

BW Plantation started its first plantation in 1997 and now manages 95,246 hectares of oil palm estate spread over seven plantations on the Indonesian island of Kalimantan. About one-third of that land, or 32,432 hectares, was planted as of the end of June this year. The management told investors during the roadshow that it will focus on planting the rest of its landbank within the next three years.

It is also expanding its milling capacity of fresh fruit bunches (FFB) to 105 tonnes per hour by the end of the year and will start construction of a third mill next year.

Among the key selling arguments were the favourable maturity profile of BW Plantation's trees, which have an average age of 9.2 years. This is resulting in a strong FFB yield, which is expected to increase to 28.4 tonnes per matured hectare this year, from 22.5 tonnes in 2008.

Based on data compiled by Dealogic, this is the first Indonesian IPO greater than $50 million to come to market since July 2008 when Trada Maritime raised $55 million and coal miner Bayan Resources sold $528 million worth of shares. The four companies that have listed so far this year have raised a combined $29 million, and have obviously not been marketed to international investors. In 2008, Dealogic tracked $2.7 billion worth of Indonesian IPOs, split over 16 issuers.

The total ECM volume in Indonesia so far this year stands at $1.6 billion, compared with $7.4 billion in 2008.