Jan 12, 2012

Garuda shares sale options, possible?

The State-Owned Ministry, that is led by Dahlan Iskan, keeps continuing to discuss possible options proposed to the three lead underwriters, that bravely absorbed unsold PT Garuda Indonesia Tbk (GIAA) shares during the IPO. 
According to sources as quoted by Kontan daily today, in the first step, it may be a fund dubbed falcon fund or falcon airlines who is willing to buy some shares of Garuda from the underwriters, PT Bahana Securities, PT Danareksa Sekuritas, and PT Mandiri Sekuritas at Rp500 a share. Danareksa's parent namely PT Danareksa (Persero) has also bought the shares during the IPO.
"But the offering might above Rp500 per share and below Rp750 [IPO level]," the sources said.
Falcon fund will come with Rp1 trillion-Rp1.5 trillion to buy the shares of the total shares of 3.01 billion shares. About 50% of the financing will be supported by Nikko Securities Indonesia and the remaining will be provided by the government, backed-up by a consortium led by PT Perusahaan Pengelola Aset (PPA). PPA could seek the financing itself from several banks such as Sumitomo Mitsui, Citibank, HSBC, and Bank Mandiri. Falcon fund will require one director and one commissioner at Garuda Indonesia.
In the second step, the shares from the underwriters will be combined into global mutual funds, that have underlying assets such as shares of Cathay Pacific, Qantas, Lufthansa, Emirates, Etihad, and KLM Airlines.
The last stage is there might be shares swap between falcon fund and a private equity who is willing to buy Garuda shares.
What do you think about the options? For me, the options seem too complicated.
The first question is which funds want to buy Garuda shares without a guarantee from the government that they want to put directors at Garuda Indonesia? It is uneasy to turn around Garuda from current situation with weak profitability into strong profitability airlines company.
If you compare Garuda Indonesia with other airlines in Asia, Garuda Indonesia ranks the lowest with the smallest growth in revenue.
It is such an old option if PPA wants back-up from other the state-owned companies, such as PT Jamsostek and PT Taspen. It needs more complicated administration process. The government always said "we have strong back-up from other state-owned companies for financing." Is it true?
The third question is who will be willing to put Garuda shares as underlying assets, despite weak operational performance? How the scheme? and how to do the shares swap?
For me, the possible option is to find a strategic investor who is willing to buy Garuda at discount price. It is a consequence of the overpriced during Garuda IPO or you can leave Danareksa, Bahana, and Mandiri Sekuritas suffering due to marked to market.

Disclosure: No position at the stock mentioned above.

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