Indorama block upsized by 80% to $395 million

The controlling shareholder of Bangkok-listed Indorama Ventures was able to upsize its sell-down in the company by 80% from the targeted size to Bt12.02 billion ($395 million) after some long-only accounts came back with very substantial orders.

Indorama is the world’s second largest producer of polyethylene terephthalate, better known as PET, which is used primarily to make drinks bottles. It is also active throughout the polyester chain. Other products include polyester fibre, which is mainly used in textiles and for industrial purposes such as conveyor belts and technical fabrics.

The deal was launched after the market closed on Thursday and closed at 10pm Hong Kong time that same evening. However, the bookrunners chose to keep the books open for a few tier-one accounts and told investors the pricing and allocation would not be available until the following morning.

And when the interest from the late-comers turned out to be so large – one global asset manager put in an order for 138 million shares, which by itself exceeded the original base deal – the bookrunners went back to the seller and agreed on the sizeable increase. The interest shows that the seller, a special purpose vehicle owned by the family of the CEO, was correct in its assessment that the time was right to get more international investors to become shareholders. To attract the attention of potential new accounts, the management did a two-day roadshow before launch.

Indorama’s initial public offering in January last year was a bit of a struggle. The bookbuilding coincided with a deterioration in sentiment for global equities and as institutional investors focused on reducing risk, their appetite for additional exposure in an emerging market like Thailand did wane a bit. In response to those developments, Indorama chose to cut its offering to 400 million shares from 913.4 million shares initially and fixed the price at the bottom (Bt10.20) for a total deal size of Bt4.08 billion ($123 million).

Only one-third of the IPO went to international investors and, according to a source, non-Thai accounts held just 4% of the company before Thursday’s placement. Since the listing, however, the share price has performed very well and the market capitalisation has increased from $1.4 billion to $6.5 billion. It is also a very liquid stock that trades about $50 million per day, making it an interesting name for investors who want to increase their exposure to Thailand. 

And, as this deal shows, Thailand has not lost its appeal even though the stockmarket gained 40% last year and was the second best performer among the major markets in the region after Indonesia, which added 46%.

The seller initially offered 120 million shares with an option to upsize by a further 30 million shares to 150 million. However, early Friday the deal was further increased to 270 million shares, representing a 6.2% stake in the company. The CEO and his family will still own 65.8% after the placement.

The price was fixed at Bt44.50, which was close to the bottom of the Bt44 to Bt46.25 range where the deal was marketed. However, the pricing didn’t come as a surprise. Clearly, there had to a be a trade-off for the fact that the initial target size was almost doubled, and the top of the range was also equal to Thursday’s closing price, making it less likely that the price would end up at that end.

The bottom end of the range translated into a discount of 4.9% and the final price of Bt44.50 equalled a fairly tight 3.8% discount.

The share price has come off since the beginning of this year as protests have flared up again among activists who want to see the ousting of Prime Minister Abhisit Vejjajiva, which may have made investors more amenable to accepting a tight discount. As of Thursday’s close, Indorama had dropped 23% from its record closing high of Bt60, which it reached in early December. However, the stock was still up 350% from the IPO.

The share price also held up well on Friday after the deal priced. By the end of the session, it had fallen just 1.1% and closed a Bt5.75 – 2.8% above the placement price.

As mentioned, the deal attracted very substantial interest from a handful of long-only accounts and also saw good demand from other institutional investors and hedge funds. Most of the buyers were international and came from across the three main regions, with slight bias towards Asia and Europe.

Aside from the fact that Indorama is one of the leading global players in the PET industry with 21 production facilities spread across 11 countries, the company also has a strong financial record, which would have appealed to international investors. And analysts remain positive, with 13 of the 17 banks covering the stock rating it a “buy,” according to Bloomberg. But it comes at a price. On the back of the steep share price rally in the past year, the stock is now trading at 19 times projected 2011 earnings.

The deal was handled by Credit Suisse and Morgan Stanley together with local Thai firm Bualuang Securities. Morgan Stanley was also a joint bookrunner for the IPO together with Bank of America Merrill Lynch, while Bualuang was responsible for the domestic portion.