June 21, 2013 / 7:15 AM / 5 years ago

Indonesia IPO train derails as investors hit the exits

JAKARTA/SINGAPORE (Reuters) - The spark that Matahari Department Store’s $1.3 billion deal was meant to provide Indonesia’s IPO market has turned into a dud.

Investors have bailed on Indonesian stock offerings, spooked by a wave of global market volatility and pricey valuations. The retreat from Jakarta by local and foreign funds is threatening other IPOs in the pipeline and hindering the ability of Indonesian tycoons to unlock money from their businesses.

Bankers and issuers were anticipating a record $4.1 billion worth of initial public offerings in 2013, including $2.5 billion in the first half of the year. The Matahari (LPPF.JK) deal in March - in which private equity firm CVC Capital sold down its stake in Indonesia’s biggest stock sale since 2011 - was seen as a stage setter.

The outlook for the market still appears positive given Indonesia’s economic prospects. But in the last few months, Jakarta IPOs are being cut in half or abandoned altogether.

“People were thinking that they were sitting on a pile of gold,” said an investment banker who covers Southeast Asia, referring to Indonesian equity deals. “The recent correction is making everybody’s expectations much more realistic.”

Indonesia’s leading shariah lender, PT Bank Muamalat, said on Friday that it had postponed its up-to $177 million IPO because of recent stock market declines.

Muamalat had earlier dropped Credit Suisse CGSN.VX and Deutsche Bank (DBKGn.DE) as advisers after an investor roadshow failed to generate strong interest, people familiar with the deal said. Spokeswomen for Credit Suisse and Deutsche Bank declined to comment.

And earlier this month, investment firm PT Saratoga Investama Sedaya (SRTG.JK) raised less than half of the $395 million it was seeking, hurt by concerns about its lofty valuation.

“Our market is quite expensive,” said Fadlul Imansyah, an equity fund manager at Jakarta-based investment firm CIMB Niaga Asset Management. “Investors want a more reasonable price.”


The gloom could hurt prospects for the planned listings of Lippo Group’s Siloam Hospitals, Indonesia’s biggest private healthcare operator, and PT Pembangunan Deltamas, the country’s largest industrial park. They are among firms seeking to raise a total $1.6 billion in the second half of 2013.

Indonesia's main stock index .JKSE has slid around 15 percent from a record high hit just a month ago and the rupiah has dropped sharply, as speculation that the U.S. Federal Reserve will reduce its stimulus program prompted foreign investors to pull money out of emerging markets.

Jerome Leleu, co-head of equity capital markets Asia-Pacific at Morgan Stanley, said it was a temporary slowdown in the IPO market caused by global volatility and outflows from emerging economies in general.

The overall outlook remains strong given Indonesia’s attractive macroeconomic backdrop, but the window for issuers is small given presidential elections next year, he said.

“We are also getting into an election period for 2014 and that will create, by definition, some volatility in the domestic market,” he said. “For the IPO market, the challenge is more about timing than fundamentals.”

But the market has also been hit by concerns about high valuations that led to most Indonesian IPOs being priced at the bottom of their marketing ranges this year.

    By contrast, neighboring countries have seen a stream of strong offerings. The $2.13 billion IPO of infrastructure fund BTS Group Holdings Pcl (BTS.BK) in Thailand and the $1.3 billion Singapore IPO of Mapletree Greater China Commercial Trust (MAPE.SI) both priced at the top of their ranges.


    Saratoga, controlled by local tycoons Edwin Soeryadjaya and Sandiaga Uno, had expected to raise $395 million in the nation’s biggest IPO since 2011, according to its prospectus.

    Its original price range of 6,100-7,800 rupiah per share offered no discount to its net asset value if it was priced at the top the range, reflecting huge confidence from the Soeryadjaya family that investors would buy the shares.

    However, it was forced to cut the offering size to 10 percent from the original plan of 15 percent and revised down its IPO price range to 5,500-5,600 rupiah per share, reflecting a 20 to 19 percent discount to the net asset value, according to Reuters calculations from the company’s prospectus.

    In the end, it managed to raise only $152 million.

    Among the IPOs next in line are those of Blue Bird Group, Indonesia’s biggest taxi operator, and budget airline PT Indonesia Airasia, a unit of Malaysia’s Air Asia Bhd (AIRA.KL).

    The Blue Bird IPO is seeking the same price-to-earnings ratio as consumer giant PT Unilever Indonesia (UNVR.JK). People briefed on the deal say reaching that valuation may be tough.

    “I think the second half will very much depend on the global market and foreign inflows,” said Jemmy Paul, equity fund manager at PT Sucorinvest Asset Management in Jakarta. “I think the interest for IPOs will run out of steam if the market stays like this.”

    (Additional reporting by Andjarsari Paramaditha in JAKARTA and Anuradha Subramanyan from IFR in SINGAPORE; Editing by Michael Flaherty and Chris Gallagher)

    This story was refiled to change IPO price range calculation based on prospectus in the 19th paragraph

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