Indonesia: IPOs ride economic growth

A flurry of initial public offerings (IPOs) planned for December and early 2013 highlight how firms in Indonesia are trying to harness bullish domestic and global confidence to fund plans for expansion.

Currently leading the pack is Indonesia AirAsia, whose planned IPO hopes to raise some Rp1.7trn ($175.78m) in early 2013. The aviation firm is closely followed by state-owned plantation firm Perkebunan Nusantara’s Rp1.5trn ($155.1m) listing, also scheduled for 2013, and state-run construction company Waskita Karya’s Rp1.2trn ($124.08m) December IPO.

The Indonesia Stock Exchange (IDX) saw two IPOs in December, bringing the total number of listings for 2012 to 23. This is down on the 24 IPOs seen in 2011, but continues to underline international sentiment over the vast archipelago’s private equity prospects.

A survey conducted by private equity firm Coller Capital saw nascent Asian economies, such as Indonesia and Vietnam, favoured by one-fifth of investors over the more mature markets found in other Asian countries, including China and India.

Northstar Pacific Partners, a local partner of global investor TPG Capital, for example, raised $800m in 2011 to invest in Indonesian companies. Other large firms, such as Starwood Capital Group, are circling in search of deals, according to reports from the Wall Street Journal.

With the money flowing or set to flow, firms offering IPOs are eyeing routes to expansion. Their ambitions reflect the economic confidence in Indonesia in the current market. Taxi operator Express Group, for example, told OBG that it is planning to enlarge its bus, limousine and taxi service. This year it aims to operate 10,000 taxis and plans to increase that number to 15,000 in the next two to three years. The firm is also developing strategies to expand throughout Asia.

Meanwhile, Indonesia AirAsia has said an increase in funds raised will help it triple its fleet size in the next five years to accommodate average annual passenger growth rate of 24% and 28% in the international and domestic markets, respectively. While speaking with Reuters in October, Captain Dharmadi, the CEO of Indonesia AirAsia, said the company will also continue to strengthen its network by adding more transit centres, developing its services to eastern Indonesia, and upgrading its sales and distribution system.

State-owned postal firm Pos Indonesia, which is planning an IPO in the second half of 2013, is currently preparing a business plan for the next five years as part of the proposal. “Now we are establishing several subsidiaries, which will then have other subsidiaries. Our long-term goal is to be an investment holding and to make the subsidiaries operate the holdings,” said I Ketut Mardjana, the president-director of Pos Indonesia, when speaking with Investor Daily.

Meanwhile, in October local phone manufacturer Tiphone used Rp400bn ($41.36m) of proceeds from its January IPO to repay the debt of its subsidiaries. The company raised some Rp406.43bn ($42.02m) from its offering in early 2012.

The equity growth has also been beneficial for the economy as a whole, with regional lender Bank Jatim using funds from the Rp1.28trn ($132.35m) it raised in an IPO in July to provide loans to startups. Meanwhile, state-owned cement firm Semen Baturaja expects to use the Rp1trn ($103.4m) it hopes to raise in its IPO for a new plant, which will have the capacity to produce 1.5m tonnes of cement per year when completed in 2015. This will increase the firm’s total production capacity to 3.5m tonnes per year by 2016.

Underlining international confidence, on November 11 Fitch Ratings maintained Indonesia’s sovereign debt rating at investment grade, citing the country’s resilient economic growth, high investment rate, low public debt ratios and sound macro policy framework.

While foreign direct investment rose 20% in 2011, the $850bn economy expanded 6.2% in the third quarter of 2012 over the same period the previous year. Firms launching upcoming IPOs will be able to take advantage of the country’s increasing international prominence for investors, suggesting that any companies considering following suit should do so, and soon.

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