Indonesia’s biggest retailer of mobile phones and other wireless communication products, Erajaya Swasembada, has kicked off the institutional bookbuilding for an initial public offering that is aiming to raise up to $200 million, or about Rp1.8 trillion.
The company will sell as much as 40% of its share capital as it seeks funding to repay an $84 million promissory note issued in connection with the acquisition of fellow mobile distributor Teletama Arta Mandiri (TAM) in August and to expand its retail and distribution network.
However, the deal size is capped at $200 million, which means that if the price is fixed at the top of the indicated range, the free-float will drop below 38%.
Erajaya is offering up to 1.32 billion new shares at a price between Rp1,000 and Rp1,440. At the bottom of the range, the company will raise about Rp1.32 trillion ($154 million).
The deal comes as ABM Investama, a diversified energy-related company with a main focus on coal mining and contract mining, is due to price its Indonesian IPO today and as the Indonesian stock market is once again showing a small year-to-date gain. The benchmark index has rebounded 16% from the lows in early October and while it is still well below where it traded before the collapse in global equity markets in early August, it is up 2.4% so far this year — one of only two Asian markets that is currently in the black (the other one is the Philippines, which is up 3.2%).
However, it is also hitting the market at a time when investors are again getting nervous about policymakers’ apparent inability to deal with the European debt crisis. Markets across Europe were lower yesterday and in the US the Dow Jones Index lost 1.1%. It is also getting a lot of competition for investor attention from an extensive IPO pipeline in Hong Kong.
ABM Investama sought to raise between $150 million and $215 million, or up to $287 million if an upsize option is exercised in full. The base deal was covered at launch by a combination of domestic and international investors.
While ABM Investama is one of many Indonesian companies to offer exposure to the coal industry, Erajaya is a play on domestic consumption. Set up in 1996, the company operates 236 retail stores in 27 cities and also has a partnership with more than 16,000 third-party resellers. It is licensed to distribute 11 different mobile brands, including Apple, Acer, Huawei, LG, Nokia, Sony Ericsson and its own brand Venera. The acquisition of TAM also added the Blackberry brand to its portfolio and strengthened its position with regard to Samsung. TAM is the leading distributor in Indonesia of these two brands (and the exclusive distributor of Blackberry), and the acquisition of the firm has reduced Erajaya’s dependence on Nokia. According to a source, the portion of revenues coming from the sale of Nokia phones will drop to 39% of sales from 55% after the acquisition.
The addition of TAM will also strengthen Erajaya’s leading position in the market. According to Frost & Sullivan, the company has a market share of 24%, compared with just 17% for the number two retailer.
Analysts note that mobile retailers play an important role in Indonesia since 95% of all mobile subscriptions are pre-paid. Indonesia is also the third-biggest wireless market in Asia. Meanwhile, Erajaya argues on its website that the fact that consumers own an average of more than 1.8 handsets each, in combination with short replacement cycles of just seven months to one-and-a-half years, presents an exciting opportunity for the company.
One syndicate analyst projects that Erajaya will generate profit growth of about 38% between 2011 and 2013, partly driven by the recent acquisition and an improvement of margins as the TAM portfolio is integrated into its own.
Erajaya paid $85 million for TAM, which translates into 12-times earnings for 2010. The two companies are complementary to one another, according to a source, as Tam gives Erajaya added scale, while Erajaya provides TAM with the capital needed to continue to grow. After paying off the promissory Erajaya will use 70% of the remaining net proceeds for working capital and 30% to expand its retail network.
Erajaya is offering its shares at a 2012 price-to-earnings multiple of 7.7 times to 10.6 times, which seems fairly attractive for a consumer retailer. The source noted that there are no listed direct comparables in Indonesia, but some investors are looking at Synnex Technology in Taiwan, a retail chain focusing on computers, mobile phones and other home electronics, which trade at 2012 P/E multiple of 14.5 times.
The institutional order books will remain open until November 28 and the price is expected to be fixed the following day. The trading debut is scheduled for December 14. Buana Capital, Credit Suisse and J.P. Morgan are joint bookrunners.
Meanwhile, in Hong Kong, Xinyi Glass announced that it has decided to postpone the spin-off and IPO of its solar glass unit, Xinyi Solar Glass, after a week of pre-marketing. The reason, it said, is that “the recent volatility in the global capital markets and the prolonged adverse impact of the sovereign debt crisis…on the global solar energy industry, the future developments of [that] industry (including the global solar glass industry) remain uncertain”.
The decision comes as no surprise. Valuations in the solar power sector have fallen significantly this year amid falling prices for solar power panels and other components and Xinyi Solar had already been forced to cut its fund raising target from more than $450 million to about $150 million. The offering was arranged by Citi and J.P. Morgan.
And in Thailand, Big C Supercenter postponed the extraordinary general meeting that was scheduled to be held yesterday to approve its Bt25 billion ($810 million) rights issue. According to a statement published on its website, the company said that some shareholders living in areas affected by the severe flooding in Thailand had informed the company that they would be unable to attend the meeting. In order to preserve the rights of its shareholders to attend and vote on the rights issue, it said it will reschedule the meeting for a later date. It didn’t specify that date, but said it will be before the end of December. The record date for who has a right to attend the EGM will remain the same, it said.
Big C is an operator of hypermarkets, convenience stores and health, beauty and pharmacy stores. It is 63.2% owned by French food retailer Groupe Casino, which has committed to take up its entitlement of the rights issue in full.
The remainder will be fully underwritten by a syndicate of banks, including Credit Suisse which acts as global coordinator and lead international bookrunner. The other bookrunners are BNP Paribas, CLSA, Deutsche bank, Bualuang Securities and SCB Securities.
