The controlling shareholder of IndonesiaÆs largest liquid cargo shipping company sold 576 million secondary shares at S$0.32 a piece, which corresponded to a 10% discount to its closing price in Jakarta on Friday (October 20). During the final two days of bookbuilding last week, the bookrunners told investors that the Singapore offer would price at a zero to 10% discount versus the local shares, and the low-end pricing came as no surprise given that the share price has just about doubled this year, outperforming its sector peers by three times.
The company focuses on the transport of chemicals, oil (including palm oil) and gas in Asia, the Middle East and Europe for customers including major international companies like Pertamina, Exxon Mobil, Shell, BASF, Celanese, Dow Chemical and SABIC.
The strong share price gains, which saw the local stock close at Rp2,075 on Friday compared with Rp1,040 on the final day of 2005, meant some potential buyers considered the stock expensive û especially amid talk that the global shipping cycle may be about to turn downward. Based on the companyÆs strong earnings growth, enough investors were willing to overlook this, however, and the institutional portion of the offer ended up being 1.75 times covered, according to an announcement to the Singapore stock exchange.
The Singapore retail offer, which accounted for 5% of the total deal size, was 2.9 times subscribed.
Even so, joint bookrunners Deutsche Bank and UBS didnÆt use neither the option to sell an additional 113.9 million Treasury shares nor the 20% overallotment option, which together could have increased the total size of the offer to $164 million.
However, a source close to the offer says the banks had little choice in this matter. Under Indonesian regulations, a listed company isnÆt allowed to sell Treasury shares at a price below that at which they bought them back from the market, which in BLTÆs case was Rp2,000 per share. Since the discounted selling price corresponded to only Rp1,868 per share, they couldnÆt be sold at this time.
The overallotment option could technically have been used, although with Singapore regulations not permitting the bookrunners to stabilise the stock once it started trading û on the basis that this would amount to stock manipulation given that the shares are already trading in another market û the bookrunners would have been unable to buy these shares back again. As a result, the two banks chose not to exercise this option either, the source says.
About 55 investors participated in the international offering with about 46% going to Asian-based investors, 31% to European accounts and the remaining 23% to US investors. In terms of types of investors, they comprised a mixture of long-only and hedge funds and included a fair number of country specialist Indonesian or Southeast Asian funds.
The shares, which were sold by a company controlled by Chairman Hadi Surya, accounted for 13.8% of the company and will increase the free float from 33.7% to 47.5%. The chairmanÆs stake will fall to 48.7%.
The selling price values the company at 7.1 times its estimated 2007 earnings, which compares with double digit multiples for many of its global peers. However, looking at it from a yield perspective, which is an often used valuation metric for shipping companies, BLT is looking very expensive at 2.2%, while global peers like US Shipping Partners, Arlington Tankers and Nordic American Tanker Shipping trade at 9%-11% dividend yields.
BLTÆs superior growth profile and its experienced management is supposedly making up for this though and during the roadshow the management stressed the diversity of its business, both with regard to geography and to its different product mix, as a way to maintain consistent growth even during the downturn of the business cycle.
ôWhile the chemical, oil and gas businesses are cyclical in nature, we believe that their business cycles are not directly correlated,ö the company stated in the listing prospectus.
The company has been profitable every year since it became a listed company in 1990 and has maintained a CAGR of 23.2% in net profit since then. In 2005, it posted a 75% rise in net profit to $60.2 million and in the first six months of this year the bottom line had already reached $56.1 million, up another 75% from the same period in 2005.
Last year, it derived 58.2% of its operating revenue from its chemical tanker segment, while the oil tanker business contributed 36.8% and the gas tanker business 4.7%.
Since 2003, the company has acquired 23 new or second-hand ships and currently has a fleet of 57 vessels with a size equivalent to 1.5 million dead-weight tonnes (DWT). The aim is to continue growing this fleet and it currently has orders in for 13 new vessels, totaling 307,780 DWT, which will be delivered over the next three years.
According to the prospectus, the company is also considering acquisitions of other shipping companies in order to meet its strategic objectives, which includes achieving a consistent operating stability that will allow it to invest more of its cash flow in expanding the business. It is also considering opening an office in India to coordinate its business in South Asia.
BLT had a vessel utilisation rate of 96.1% in 2005 and 95.4% in the first half of this year.
ôIf you are bullish on the liquid shipping sector then this isnÆt a bad trade,ö says one observer, adding that the strong growth profile does make BLT ôquite a unique company in its spaceö.
Some market watchers questioned why the company chose the much more costly and time-consuming option to list in Singapore (the listing plans have been in the works for more than a year) when it could have done a block trade and reached many of the same international investors. The company also had to pay its bookrunners a 2.5% fee instead of the 1.5% to 2% fees that are the norm in Jakarta.
Sources familiar with the offering say the decision to choose Singapore was part of the companyÆs aim to lift its international profile and present itself as a regional player. Singapore has a natural affiliation with shipping with many of BLTÆs regional competitors already listed there and the city-state is also becoming something of a listing hub for the ASEAN region, making it an obvious choice, one source argues.
ôThe management also felt that perhaps the market applies a bit of a discount to its Indonesia-listed stock because of corporate governance reasons and having the rubber stamp of the Singaporean regulators may improve the way it is perceived,ö he says.
However, a Singapore-based banker not connected to the offering argues that this is unlikely to change unless the company de-lists in Indonesia altogether and says he doubts that this first dual listing would set much of a precedent for other Indonesian companies to follow.
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