Indonesian independent power producer Cikarang Listrindo started bookbuilding for an initial public offering in Jakarta on Monday, potentially offering investors a new defensive play in an emerging market that is usually more focused on earnings growth.
The West Java-based electricity producer is looking to raise up to Rp4.75 trillion ($357 million), rising to $477 million if a greenshoe option is exercised, which would make it the country's biggest IPO in more than five years.
It is also coming to market at a time when other Indonesian sectors are struggling due to low commodity prices, a weak rupiah, and higher import costs -- including agriculture, mining, and consumer goods.
Against this backdrop, investors have turned to defensive stocks that generate stable income. For example, the share price of Telekomunikasi Indonesia, the country’s largest telecommunications operator, has surged by 24% since the start of the year, far outpacing the Jakarta Composite Index’s 4% gain.
As the first publicly listed power producer in the country, the IPO of Cikarang Listrindo will offer fund managers a prime opportunity to rebalance their portfolios, seeing as most defensive stocks in Indonesia are telecommunications-related.
Given its large size, Cikarang Listrindo’s IPO in June will be an important test of demand for Indonesian equities. The deal could potentially be the largest Indonesian IPO since national airline Garuda Indonesia raised $520 million in January 2011.
Terms
According to the terms of the IPO, 2.41 billion shares, or 15% of the company’s enlarged share capital, are being marketed at an indicative price range of Rp1,430 to Rp1,930 per share. A third of the shares on offer are existing shares.
There is also a greenshoe equating to a further 5% of the enlarged share capital.
Based on syndicate consensus earnings before interest, taxes, depreciation, and amortisation of $287 million next year, Cikarang Listrindo will be valued at 7 to 9 times EV/Ebitda and an equity value of $1.7 billion to $2.4 billion on a post-money basis.
On a price-to-earnings basis the company will be valued at 11.5 times to 15.8 times 2017 earnings.
The indicative valuation implies a dividend yield of 3.8% to 5.2% for the 2017 financial year. That compares with 2.6% for Telekomunikasi Indonesia and 6.3% for natural gas distributor Perusahaan Gas Negara Persero, although the latter's relatively high yield is mainly the result of its heavily underperforming stock performance since January last year.
Cikarang Listrindo’s stable income originates from its exclusivity in power distribution in five industrial estates in Cikarang, West Java. According to an investor presentation, the industrial estates are only 55% electrified and therefore could provide further room for power distribution.
In order to cope with increasing electricity demand, the company is building a new 280 megawatt coal-fired power plant that is expected to complete by the end of this year. Completion of the new plant will boost the company’s total installed capacity by 32% to 1,145 megawatts.
According to the indicative timetable, Cikarang Listrindo will collect institutional orders until May 26, followed by a two-day Indonesian public offer on June 7 and June 8. Listing is slated for June 14.
Citigroup, Deutsche Bank, UBS, and Indo Premier Securities are joint bookrunners on the IPO.
