As a result of the deal, which priced at Rp2,600 per share, a 3.7 discount to the previous day's close, the government's shareholding has dropped from 66% to 54%. Since the government has always said that it wants to maintain majority ownership of the telecoms company, the deal removed the last overhang of its privatization programme and allowed investors to focus on value considerations instead.
Currently trading at 3.01 times 2002 earnings on an EV/EBITDA basis, Telkom is Asia's cheapest major telecom company and bankers argue that it is also one of the most undervalued. As one puts it, "Indonesia's telecommunications industry has a more rational structure than other SE Asian countries such as Thailand for example. And one of the major attractions of PT Telkom is its ownership of a 77% stake in PT Telkomsel, one of Asia's fastest growing cellular operators."
Books for the deal were opened in Europe rather than Asia after Thursday's close because of a slight delay getting the final regulatory sign-off. They were then closed after a 12 hour accelerated bookbuild. With Bahana Securities, Goldman Sachs, Merrill Lynch and UBS Warburg as joint-lead managers, the deal ended up being one-and-a-half times covered, with about 80 investors in total and three large orders for more than 10% of the deal.
Allocations saw 48% of paper placed in Asia, of which about 13% went to Indonesia, with Europe taking 35% and the US 17%. There was no retail distribution and the deal was 144a rather than a fully registered SEC offering, which means that accounts will not be able convert local shares into ADR's for 12 months.
The government is also subject to a three-month lock-up from selling more shares.
Strong demand for the deal enabled the placement size to be increased from between 5% and 10% of issued share capital to 12% and pricing to come inside of the marketed range of a 4% to 6% discount. In a further sign of the stock's potential upside, pricing did not come inside the levels of the government's last major placement in May 1999.
In a deal led by Lehman Brothers and Merrill Lynch, the government raised $406.9 million selling 898 million shares or a 9.6% stake at Rp3,650 per share. This represented a slim 2.01% discount to close.
The current placement is the largest equity deal from Indonesia since the PT Telkom sale and since then, there have been just two international offerings from the country - the $100 million IPO of Bank Central Asia led by Merrill Lynch last year and a $47 million secondary placement by the bank in July. As a result of PT Telkom's dominance on the Jakarta Stock Exchange, the placement represented 20 days trading volume of the entire exchange and 44 days volume of the underlying stock, which averages turnover of about $6.5 million per day.
Year-to-date, the stock is up 17.44% (Thursday's close) against a 9.394% drop in the Jakarta Composite Index (Friday's close). The government had originally mandated Bahana, Merrill's and Warburg's to complete a share placement at the end of the summer when the stock had traded up to a high of Rp3,525.
However, plans were put on hold after sentiment towards the Muslim country deteriorated after September 11. Having rapidly recovered some of the lost ground during the middle of October, the stock had traded fairly flat in the six week run up to the deal. The decision to revive the plan was, therefore, partially dictated by other considerations. In particular, the government's failure to complete the sale of cement company PT Semen Gresik to Mexico's Cemex, meant that it needed to find another candidate to book privatization proceeds and meet IMF conditions before calendar year end.
