By Kevin Brown in Singapore and Anthony Deutsch in Jakarta
Published: January 24 2011 13:12 | Last updated: January 24 2011 13:12
Published: January 24 2011 13:12 | Last updated: January 24 2011 13:12
Garuda, the state-owned Indonesian flag-carrier, is facing strong institutional resistance to the high guide price for its initial public offering, raising concerns that it might raise far less than the $1bn it hoped for.
The low level of interest in the offering will be a serious blow to the airline, which completed a five-year debt restructuring in December, and has made considerable progress over the past few years in improving its financial and safety performance.
It will also be a setback for the Indonesian government, which is understood to have insisted on a high price for Garuda against the advice of investment bankers working on the sale.
The government is planning to offer large stakes this year in IPOs involving state-owned telecommunications, cement and construction companies, and may now have to settle for raising considerably less than it hoped.
Marketing of the issue was due to close at 5pm on Monday in New York with final pricing following on Tuesday. However, a person close to the transaction said the process had “gone very badly, especially with overseas investors”.
Another person with knowledge of the situation said he expected there to be very few foreign investors on the share roster, in spite of growing excitement about the economic prospects of Indonesia, south-east Asia’s biggest economy.
In the absence of a late surge of interest in Europe or the US, the issue looked likely to raise about $350m in primary proceeds, with the shares priced at or near the bottom of the Rp750-Rp1,000 range set by the Indonesian government.
The airline would be able to raise more cash in the subsequent retail offering. However, one person with knowledge of the situation said the final number of shares sold would probably be lower than the 9.6bn being offered for sale.
Although none of the Indonesian or international banks involved in the issue would comment, the government is believed to have rejected advice that the shares should be priced at between Rp600-Rp800.
Institutional investors are understood to have complained that the indicative pricing valued the airline at 18 times forecast earnings, compared with about eight times earnings for Thai Airways and nine times for Cathay Pacific.
“It was always too expensive,” said a person close to the situation. “Really, it was just totally unrealistic.”
A disappointing outcome would provide another reality check for investors in Indonesia, where excitement about the country’s prospects had been rising rapidly on the back of economic growth, in spite of problems including corruption and surging inflation.
After outperforming most markets in 2009 and 2010, Indonesian stocks have been sold off sharply this year, mainly due to concerns over soaring food prices.
With the Jakarta Composite down by more than 10 per cent it is technically in a correction, another factor that could damp demand for new issues.
A Garuda flop could also have a wider impact – perhaps delaying recently announced plans for an IPO by Vietnam Airlines, which is watching the Garuda offering closely.
The government is planning to offer large stakes this year in IPOs involving state-owned telecommunications, cement and construction companies, and may now have to settle for raising considerably less than it hoped.
Marketing of the issue was due to close at 5pm on Monday in New York with final pricing following on Tuesday. However, a person close to the transaction said the process had “gone very badly, especially with overseas investors”.
Another person with knowledge of the situation said he expected there to be very few foreign investors on the share roster, in spite of growing excitement about the economic prospects of Indonesia, south-east Asia’s biggest economy.
In the absence of a late surge of interest in Europe or the US, the issue looked likely to raise about $350m in primary proceeds, with the shares priced at or near the bottom of the Rp750-Rp1,000 range set by the Indonesian government.
The airline would be able to raise more cash in the subsequent retail offering. However, one person with knowledge of the situation said the final number of shares sold would probably be lower than the 9.6bn being offered for sale.
Although none of the Indonesian or international banks involved in the issue would comment, the government is believed to have rejected advice that the shares should be priced at between Rp600-Rp800.
Institutional investors are understood to have complained that the indicative pricing valued the airline at 18 times forecast earnings, compared with about eight times earnings for Thai Airways and nine times for Cathay Pacific.
“It was always too expensive,” said a person close to the situation. “Really, it was just totally unrealistic.”
A disappointing outcome would provide another reality check for investors in Indonesia, where excitement about the country’s prospects had been rising rapidly on the back of economic growth, in spite of problems including corruption and surging inflation.
After outperforming most markets in 2009 and 2010, Indonesian stocks have been sold off sharply this year, mainly due to concerns over soaring food prices.
With the Jakarta Composite down by more than 10 per cent it is technically in a correction, another factor that could damp demand for new issues.
A Garuda flop could also have a wider impact – perhaps delaying recently announced plans for an IPO by Vietnam Airlines, which is watching the Garuda offering closely.
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