Partners get huge chunk of Indonesia's Adaro IPO Wed Jul 9, 2008 6:52am EDT
By Harry Suhartono and Tony Munroe JAKARTA/HONG KONG (Reuters) - Shares in PT Adaro Energy's $1.3 billion IPO, Indonesia's largest offering, were mostly distributed to connected parties, disappointing some domestic investors and global funds. Several big foreign investors active in Asia have grumbled that they were shut out of the country's biggest-ever initial public offering despite heavy overseas interest in what is seen as an attractively priced deal. The deal underscores the opacity that sometimes plagues Southeast Asia's biggest country. No international prospectus was issued, which was surprising to some observers given the size of the IPO, but not unheard of, people familiar with the matter said. Adaro said in a document that 69.15 percent of the 11.14 billion shares offered will be allocated to five investors who already had stakes in PT Adaro Indonesia, a coal miner that Adaro Energy plans to acquire with the proceeds from the IPO. They are Farallon Capital, Kerry Coal, the Government of Singapore Investment Corp (GIC), Citigroup (C.N: Quote, Profile, Research, Stock Buzz), and Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz). Just 22.82 percent of the IPO shares are being allocated to domestic institutions, asset managers, insurers, pension funds, and individuals. Schroders Investment Management Indonesia will become the biggest unconnected institutional buyer of the IPO with $12 million worth of shares. Remaining shares went to foreign investors including Dubai Investment Group, a company document said. "International investors should have been consulted on this, especially given the size," said a senior fund manager in June in Hong Kong whose global firm bought shares in the recent $300 million IPO by rival Indonesian coal producer PT Indika Energy Tbk INDY.JK. Foreign fund managers who said they were unable to get Adaro shares declined to be identified for fear of being shut out of future deals. A limited free float increases the scarcity value of Adaro shares, which are set to list on the Jakarta bourse on July 16. Indonesia's market regulator approved the IPO on Friday. "I don't think we can get a meaningful amount so I don't even bother," another senior executive at a global investment company told Reuters in June. "To me, it is not a proper IPO." Amica Darmawan, an analyst at First State Investment in Indonesia, told Reuters that her Australia-based firm was allotted IPO shares but not as many as it had sought in order to keep a proportional weighting of the stock in its funds. "This could be a problem because we won't be able to match the performance of our funds relative to the index if Adaro shoots up," she told Reuters this week. "We are likely to keep our holdings, we might buy more during the first day trading, depending on how the shares are performing." Local brokerage Danatama Makmur is lead manager on the deal. Three international banks also on the deal -- Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz), and DBS (DBSM.SI: Quote, Profile, Research, Stock Buzz) -- all declined comment. BIG MINER Adaro Energy will control one of Indonesia's biggest coal miners, PT Adaro Indonesia, at a time of soaring coal prices. Adaro Energy has said it plans to use nearly 97 percent of the IPO proceeds to buy five affiliated firms: Adaro Indonesia, Coaltrade Services International, PT Saptaindra Sejati, PT Indonesia Bulk Terminal, and PT Makmur Sejahtera Wisesa. While Indonesian rules prohibit fixed allocation to affiliated parties in the event that an IPO is oversubscribed, which the Adaro deal was, Danatama said the connected partners of the company are not affiliated parties of Adaro Energy as defined by capital market regulations, and the regulator agrees. "We have seen the list and they have given a statement that those parties are not affiliated," said Nurhaida, head of the financial analysis bureau at capital market watchdog Bapepam. The offering was more than 6 times subscribed, with over 81 percent of orders by value coming from foreign investors, according to Danatama, which has handled eight domestic IPOs since 1999, and ranks sixth in terms of the total value of Indonesian IPOs sold since then, Thomson Reuters data show. Adaro's ownership has been the subject of a decade-long legal dispute between two of Indonesia's wealthiest businessmen -- pulp-and-paper tycoon Sukanto Tanoto and investor Edwin Soeryadjaya -- which may have deterred some IPO investors. Indonesia is the world's largest thermal coal exporter, attracting heavy international interest as energy prices surge. Valuations of miners have become expensive, making Adaro Energy shares attractive by comparison. Shares in PT Bumi Resources Tbk BUMI.JK, the largest coal miner, trade at 11 times 2009 forecast earnings, while the local arm of Thailand's Banpu, PT Indo Tambangraya Megah Tbk ITMG.JK, trades at 9 times 2009 earnings. Adaro is a bargain by comparison, with its shares priced at around 7 times 2009 earnings based on the company's guidance. (Additional reporting by Saeed Azhar in Singapore and Tyagita Silka from Jakarta, editing by Sara Webb & Kim Coghill) © Thomson Reuters 2008 All rights reserved