Indonesia's state-owned company subsidiaries may undertake lower-bound IPOs to raise fresh funding amid more market uncertainties this year. (Antara Photo/Sigid Kurniawan)

State-Owned Subsidiaries Set for Lower-Bound IPOs: Mandiri Sekuritas


NOVEMBER 13, 2017

Malang. Some of Indonesia's state-owned company subsidiaries may undertake IPOs at lower-bound levels to raise fresh funding amid more market uncertainties and also because plenty of local small-sized companies have already conducted IPOs this year.

Two subsidiaries, Wika Gedung and PP Presisi, are likely to undertake lower-bound IPOs, expecting to reap only around Rp 1 trillion ($74 million) in fresh capital, said Heru Handayanto, a director at Mandiri Sekuritas — a brokerage firm under state-controlled lender Bank Mandiri — on Saturday (11/11).

Mandiri Sekuritas will be the underwriter for Wika Gedung's and PP Presisi's IPOs.

PP Presisi, a unit of state-controlled construction firm PP, will set an IPO price of between Rp 340 and Rp 550 per share, while looking to sell a total of 4.23 billion new shares — 35 percent of its total equity.

At the lower-bound level, the company expects to raise around Rp 1.43 trillion in fresh funding — below the company's initial target of Rp 3 trillion.

Wika Gedung, a unit of state-controlled Wijaya Karya, meanwhile plans to offer an IPO price of Rp 290 to Rp 456 per share and looks to sell a total 4.46 billion new shares — 40 percent of its equity.

Wika wants to raise Rp 1.29 trillion to Rp 2.03 trillion in fresh funding. The company had previously set an IPO target of around Rp 3 trillion to Rp 5 trillion.

Both companies plan to list their shares at the Indonesia Stock Exchange (IDX) later this month.

A unit of Indonesia's port operator Pelabuhan Indonesia (Pelindo) II, Jasa Armada Indonesia, is also planning an IPO for later this year.

The company has not announced its IPO target since it is still waiting for its book building period to be set.

Its IPO is likely to be conducted in December.

So far this year, out of state-owned company subsidiaries, only GMF Aero Asia, flag carrier Garuda Indonesia's aircraft maintenance unit, has raised funding from an IPO in September.

GMF reaped Rp 1.13 trillion in fresh capital, far less than the expected Rp 4 trillion.

"Companies are lowering their IPO targets because of weak demand. Foreign investors are still taking a 'wait and see' approach. Companies understand this situation. A lot of them actually want to undertake IPOs this year, but the market is not supportive enough," Heru said.

Even though domestic investors can still sustain the market, IPOs are a less interesting prospect when demand from foreign investors is weak.

"IPO is expected to draw foreign investors, especially large corporations. [Seeing the weak demand] several major companies have decided to postpone their IPOs until next year," Heru said.

Leo Rinaldy, Mandiri Sekuritas' chief economist, said the negative sentiment this year is mainly the result of external factors.

Foreign investors are waiting to see what kind of policies will be issued by the first new US Federal Reserve Chair since 2014, Jerome (Jay) Powell, who is replacing Janet Yellen.

They are also keeping an eye on Republican senators who may propose to delay corporate tax cuts until 2019, which may create a new clash between US President Donald Trump and the Senate.

The corporate tax cuts are part of Trump's campaign promises to spur the country's economic growth.

However, the cuts may also create uncertainties in the market and encourage foreign investors to move their money elsewhere, most likely to Asian countries, Leo said.

Foreign investors have posted a total of Rp 25 trillion in net sales at the IDX since January this year.

Far Below Government Targets

Aloysius Kiik Ro, the restructuring and business development deputy at Indonesia's State-Owned Enterprises Ministry, earlier said four state-owned company subsidiaries that go public this year are expected to raise a combined amount of Rp 11.1 trillion.

The target was revised to Rp 9 trillion in October after it was announced GMF AeroAsia's IPO had come far below target.

Consequently, the remaining IPOs by state-owned company subsidiaries still in the pipeline this year are also expected to net lower results — in fact, far below the government's targets.

Hope for Market Rally in 2018

Indonesian companies, both state-owned and privately owned ones, are lining up to undertake IPOs in the first half of next year, hoping that by then market conditions will have improved.

"Historically, market conditions will pick up during an election year, boosted by private spending and spending for political party advertisements," Mandiri Sekuritas' president director, Silvano Rumantir, told reporters on Friday.

The brokerage firm will act as IPO underwriter for at least three companies next year.

"Six companies in the health, household consumption and building material industries, are lining up for an IPO next year. One of them is the subsidiary of a state-owned company," Silvano said without disclosing the names of the companies or their IPO targets.

By September, Mandiri Sekuritas had already taken care of four IPOs and rights issues — underwriting Rp 2.9 trillion out of a total of Rp 19.5 trillion in fresh capital garnered from 26 IPOs and rights issues so far this year.

The brokerage was the underwriter for GMF Aero Asia and jewelry manufacturer Hartadinata Abadi, and also handled the rights issues of the country's largest chemical producer, Chandra Asri Petrochemical, and telecommunication tower operator Protelindo.

Last year, the company handled a total of 12 IPOs and rights issues, raising around Rp 7.6 trillion in fresh funding.

The IDX saw a total of 31 IPOs and rights issues for a total of Rp 78.1 trillion in fresh capital in 2016.

Mandiri handled IPOs and rights issues for state-controlled construction companies Wijaya Karya, PP, Waskita Beton Precast and toll road operator Jasa Marga in 2016, among others.