January 12, 2011
Garuda Indonesia, the nation's flag carrier, expects to raise up to USD$1.1 billion in an initial public offering next month that could be the country's second largest, though its valuation looked pricey versus peers.
The government's offering for the state carrier is aimed at tapping a boom in investor interest in Indonesia, though stocks have slipped this year after a record rally in 2009 and Garuda's price range was set about 30 percent higher than expected.
"I'm on my way to Singapore to meet international investors and I don't know how we can sell this stock," said a source with knowledge of the deal. "In November, the company even recorded a net loss, mostly due to a volcano eruption in Java."
The government set the price range at 750-1,100 rupiah (USD$0.083 - USD$0.122) per share, said Mustafa Abubakar, the state-owned enterprises minister. Two sources with knowledge of the deal said the government rejected a range of 560-850 rupiah suggested by underwriters on Tuesday.
Indonesia's President Susilo Bambang Yudhoyono held a special meeting on Wednesday at the state palace with Abubakar, the finance and chief economic ministers to talk about the price after underwriters submitted their suggestion, the sources said.
The firm has said that it will offer a 36.5 percent stake, or 9.362 billion new and existing shares, and if the top end of the range is met it would make it second only to the launch of Adaro Energy, which raised USD$1.3 billion in 2008.
"I need to see what is in their books first before I decide to buy, but it looks quite expensive," said Winston Sual of Panin Securities, the nation's best performing fund manager in 2010.
HIGHER THAN REGIONAL PEERS
Garuda's price range reflects 7.4 to 10.8 times its Enterprise Value (EV) to EBITDA, said Iman Rachman, head of investment banking at Mandiri Sekuritas, one of the local underwriters.
That is higher than regional peers such as Singapore Airlines with an EV to EBITDA at 4.9 times, and Thai Airways at 5 times.
Bank Mandiri the biggest state lender, is selling part of its 10.6 percent stake in the IPO and bankers say the par value of its holding is 500 rupiah a share, meaning it will make a windfall from the sale.
The Indonesian government initially planned to launch the IPO last November, but delayed it until 2011. The company aims to list on February 11 and will use the funds raised for expansion.
"We need to spend huge investment of about USD$1.3 billion over the next five years including to rent and buy airplanes," said Elisa Lumbantoruan, Garuda's acting finance director, adding that the firm will have 153 planes in 2014 from 87 in 2010.
Airline executives say the Indonesian market is seeing strong demand and is a bright spot in a global industry still struggling to recover after the financial crisis, though budget carrier Mandala Airlines said on Wednesday it was suspending flights because of debt problems.
Global margins remain low and traffic growth slowed in November, the International Air Transport Association (IATA) said last month.
In November, days after the government said Garuda had a nine-month loss of INR39.5 billion rupiah, the airline shocked investors by instead announcing a profit of INR194 billion, attributing the change to an auditing anomaly.
Garuda, established in 1949, is named after a mythical giant bird that is one of the state's main symbols. Its performance has improved in recent years after being banned by the European Commission from flying to Europe because of safety concerns.