UPDATE 1-Garuda Indonesia IPO to raise $526 mln, retail may lift debut

Wed Jan 26, 2011 6:02am EST

Related Topics

 * Govt confirms IPO price at 750 rupiah per share
 * Govt cuts offering size to 6.3 bln shares
 * To raise less than half hoped for after rich pricing
 * Debut still seen attracting retail demand

 (Updates with details, quotes)	
 By Rieka Rahadiana and Fathiya Dahrul	
 JAKARTA, Jan 26 (Reuters) - National carrier PT Garuda
Indonesia's initial public offering will raise $526 million,
less than half the $1.1 billion targeted, though local investors
see it attracting strong retail demand on its February debut. 	
 Foreign investors were put off by pricing that valued Garuda
far higher than regional peers, after the government intervened
to push the initial range higher, and underlines reduced
bullishness on Indonesian assets after a sell-off this month.	
 The government set the offer at 750 rupiah per share, the
bottom of the 750-1,100 rupiah initial range, and reduced the
offer to 6.3 billion shares from initial expectations for 9.362
billion, Pandu Djajanto, a deputy for privatisation at the state
enterprises ministry, told Reuters.	
 Several institutional investors briefed by Garuda during a
global roadshow found the pricing too rich, though some local
instutitional investors said they still expected good retail
demand to ensure a positive debut.	
 "I think at this price Garuda's stock will become a darling
on its debut as local investors are very keen to get it," said
Pardomuan Sihombing, head of research at PT Recapital Securities
in Jakarta. 	
 	
 Foreign investors attracted to Indonesia's booming economy
are wary of state interference and poor corporate governance in
a country where some of the biggest enterprises are owned by the
government, giving them big advantages over private firms.      	
 Garuda's IPO has already involved the highest levels of
power, with President Susilo Bambang Yudhoyono and his top
advisers consulted when airline and privatisation officials went
against the advice of the book valuers' suggested range of
560-850 rupiah, sources close to the deal said.	
 Local underwriters were then left confused after state
enterprise minister Mustafa Abubakar told a press conference on
Wednesday that the offer would be only 5.735 billion shares,
only for Djajanto to later confirm it was 6.3 billion to include
a full sale of a 10.9 percent stake owned by state lender Bank
Mandiri .	
 Garuda's IPO price reflects 7.4 times its Enterprise Value
(EV) to EBITDA, which is higher than regional peers such as
Singapore  Airlines with an EV to EBITDA at 4.8 times,
and Thai Airways at 4.9 times, according to data from
Thomson Reuters' Starmine.	
 The government may have moved to lift the price range after
being accused by some critics of selling off assets cheaply last
year when the IPO for Krakatau Steel was heavily
oversubscribed after being priced at the bottom of the range.	
 Abubakar said the Garuda IPO was fully covered.	
 "We will participate as we expect some upside from locals,
and retail buying will also be strong during its debut," said a
Jakarta-based fund manager, who declined to be identified as he
is not authorized to speak to the public.	
 The offering comes as Jakarta stocks have dipped 7
percent this year on fears the central bank is behind the curve
in tackling inflation and as investors take profits from last
year's 46 percent rally.	
 Garuda's IPO is the first of a slew of state enterprises due
for flotation this year and will also be closely watched by flag
carrier Vietnam Airlines, which is planning to go public this
year. Garuda's IPO raised less than Philippine budget carrier
Cebu Air's $538 million in October last year.	
 "After building up investors' appetite for its IPO, it's
disappointing to see Garuda falter at this critical stage," said
Shukor Yusof, analyst for S&P based in Singapore.	
 "If the airline fails to get sufficient funds then its
refleeting programme could be in jeopardy...This could all have
been avoided if Garuda and those behind its planned listing had
been more realistic about the airline's prospects."	
($1 = 9036.5 Rupiah)	
	
 (Additional reporting by Janeman Latul in JAKARTA and Harry
Suhartono in SINGAPORE; Editing by Neil Chatterjee)	
 
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