Pre-marketing starts for a follow-on share sale in Indonesian contract mining and equipment rental company Petrosea that could raise about US$100 million.
Petrosea, an Indonesian engineering, construction, contract mining and equipment rental company owned by Indika Energy, as quoted by FinanceAsia today, looks set to become one of the first big companies to sell shares to international investors this year after bankers started pre-marketing a follow-on yesterday.
According to a source, the pre-marketing is scheduled to continue until January 19 and the deal is expected to launch after the Lunar New Year holidays. However, the timetable has yet to be fixed. Macquarie and UBS are arranging the deal.
Petrosea listed on the predecessor to the Indonesian Stock Exchange in 1990. However, in 2009 Indonesian coal miner Indika Energy bought a 98.55% stake in the company. Petrosea has remained listed, but with a free-float of less than 2% it is thinly traded and the regulators have ordered Indika to sell at least 16.6% of the share capital to public investors to improve the liquidity.
So, while this is technically a follow-on share sale, in practice it will be a re-IPO of Petrosea. Consequently, the sale, which consists entirely of secondary shares, won’t be done through an overnight placement, but will be marketed over a few days. The management is also expected to do a short roadshow to meet with potential investors in Asia and Europe. The offering won’t be open to onshore US investors.
Petrosea currently has a market cap of about Rp3.35 trillion (US$367 million), but analysts argue that the market price is depressed by the minimal free-float and say the fair value of the company should be about US$600 million.
Based on that higher number, a 16.6% stake would translate into a deal size of about US$100 million. To reach that, the price per share will have to be set well above the current market price, but given the small number of outstanding shares that is unlikely to be an issue.
As is often the case with re-IPOs, investors are bound to value the company relative to its peers rather than at a discount to the market price, as is otherwise the case with follow-ons. It remains to be seen, though, if investors agree with the analysts’ valuation of about US$600 million.
Petrosea’s shares last changed hands at a price of Rp33,200, although that was on November 4. Since then there has been no trading in the stock.
In fact, since the beginning of September, the stock has only traded on seven occasions and the “busiest” day saw a mere 2,500 shares change hands, which is less than 0.1% of the free-float. The share price was unchanged at Rp38,500 between September 1 and November 2.
The company reported a 36% year-on-year increase in revenues in the first nine months last year to US$185 million, according to an investor presentation posted on its website.
This compares with revenue of US$187 million for the full year 2010. Ebitda grew by 46% in the same period to US$64 million. However, the net profit margin shrunk to 18% from 22%, and net profit was up just 12% to US$33 million in the 9 months to September. In 2010, it generated a net profit of $42 million based on a net profit margin of 23%.
The company has increased its focus on the mining sector since it was taken over by Indika. Aside from the contract mining and equipment businesses, it also owns a 50% stake in the Santan Batubara coal mining concession, which completed construction at the end of 2008 and is currently producing about 2 million tonnes of coal per year. The other 50% of Santan Batubara is owned by Harum Energy, which is also listed in Indonesia.
In the first nine months last year, 87% of Petrosea’s revenues came from businesses related to mining, while engineering and construction accounted for just 6%. The remaining 7% came from its Petrosea Offshore Supply Base business, which provides various services for the offshore oil and gas industry, including cargo handling and storage facilities.
In 2008, engineering and construction accounted for 43% of the revenue, while mining made up 49%. Indonesia was one of the best performing stock markets in Asia in 2011 for the second year running and analysts remain largely positive about the country, which has been able to offset some of the effects from slowing global growth by relying on its strong domestic consumer base.
However, activity in the equity capital markets fell to US$4.8 billion last year from US$11.3 billion in 2010, according to Dealogic data, and the country’s share of the ECM volume in Southeast Asia fell to 26.2% from 31.9% the previous year.
Disclosure: No position at the stock mentioned above.
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