UPDATE 2-CVC cashes in from $1.3 bln offering of Matahari shares

Fri Mar 22, 2013 4:21am EDT

* CVC could make 7-8 times return on initial 2010 investment

* Matahari offering priced at 10,850 rupiah/share - sources

* Values Matahari at $3.3 bln and 27 times P/E

* Underwriters stand to earn about $18.2 mln from deal

By Elzio Barreto and Stephen Aldred

HONG KONG, March 22 (Reuters) - CVC Capital Partners and PT Multipolar Tbk raised around $1.3 billion by selling part of their stake in Indonesian retail giant PT Matahari Department Store, sources said, underlining the profit potential for private equity firms in fast-growing Southeast Asian markets.

London-based CVC, which bought a 60 percent stake in Matahari in 2010, is on course to make a return of between seven and eight times its initial investment if it eventually exits its entire stake at the current valuation, according to Reuters calculations. By private equity standards, making two times cash paid is considered a success.

The deal is also a timely boost for CVC after it suffered last year Asia's largest-ever private equity loss of A$1.8 billion ($1.9 billion) on its investment in Australia's Nine Entertainment.

"The transaction introduces domestic listings as an additional viable exit route for larger private equity investments in Indonesia, a welcome development for the PE money invested or being lined up to invest in the country," said Michael Prahl, executive director for INSEAD's Singapore-based Global Private Equity Initiative.

"It also shows that large controlling deals can be done in Indonesia, and they can be done outside the commodities space, where most large deals have traditionally taken place," he said.

CVC, through one of its subsidiaries, and Multipolar sold 1.167 billion shares in Matahari at 10,850 rupiah each, just above the middle of a marketing range, sources with direct knowledge of the deal told Reuters. That put the total deal at 12.66 trillion rupiah ($1.3 billion), making it the biggest stock sale in Indonesia since 2008.

The deal values Matahari, Indonesia's biggest department store operator, at close to $3.3 billion and gives it a price to earnings (P/E) multiple of 27 times for fiscal year 2013, according to separate sources with knowledge of the matter.

"I think the price is still reasonable given Matahari's robust growth profile and Indonesia's consumer potential," said Jemmy Paul, fund manager at PT Sucorinvest Asset Management.

"Given its main competitor Ramayana is trading at 22 times PE, then Matahari will trade at a slight premium," said Paul.

The offering had initially been marketed in a range of 10,000 to 11,250 rupiah per share, before being narrowed to 10,650 to 10,950 rupiah.

It was still unclear what percent CVC and Multipolar held in Matahari after the secondary share sale, which was equivalent to a 40 percent stake in the retailer. Prior to the offering, Matahari was owned 71 percent by Asia Color Company, a CVC vehicle in which Singapore's GIC also has a stake, and 24.9 percent by Multipolar. Their stakes could fall further if an overallotment on the deal is exercised.

CVC declined comment.

PROFITS SOAR

Investors are attracted to Indonesia's fast-growing economy and expanding middle class, with the country expected to add 90 million people to its consuming class by 2030, according to McKinsey & Co.

Matahari's net profit soared 66 percent in 2012 from the previous year to 770.9 billion rupiah, while revenue rose 19.5 percent to 5.62 trillion rupiah over the same period.

Gross sales at stores opened for at least one calendar year grew 11.1 percent in 2012, 13.6 percent in 2011 and 11.2 percent in 2010, the offering document showed.

The offering secured about $435 million in cornerstone pledges from a who's-who of global and regional investors, including BlackRock, Fidelity Investments, Schroders and Goldman Sachs' GS Investment Strategies.

The group of 15 investors also includes Government of Singapore Investment Corp and state investor Temasek , and hedge funds Och-Ziff Capital Management Group LLC and Azentus Capital Management Ltd.

Cornerstone investors in Indonesia are free to sell their shares any time they want, unlike in Hong Kong, where they get guaranteed allocation in exchange for holding the shares for a fixed amount of time, typically three months.

The sale will also help boost liquidity in the thinly traded stock, with Matahari's free float rising to about 42 percent after the offering, from less than 2 percent before. If the overallotment is exercised, Matahari's free float would reach nearly 48 percent, according to the offering document.

Matahari shares were suspended on Friday at the company's request to stabilise pricing. The last day the shares changed hands was on March 8, when they closed at 4,200 rupiah.

CVC acquired a 60 percent stake in Matahari in 2010 through a $790 million buyout, which included around $350 million of leveraged debt. Assuming CVC paid in around $264 million of equity for its stake, the firm is on course to make around seven to eight times that amount if further exits achieve the same valuation, according to Reuters calculations.

CIMB Bank, Morgan Stanley and UBS were hired as joint global coordinators for the deal. The underwriters stand to earn about $18.2 million, or 1.4 percent of the offering excluding the overallotment option on the sale, according to the offering document. ($1 = 9733.0000 Indonesian rupiahs)($1 = 0.9580 Australian dollars)

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