Bloomberg News

Indonesia IPOs Set for Record as Stocks Rally, Bahana Says

June 30, 2011

(Updates with stock index’s move in fifth paragraph.)

June 30 (Bloomberg) -- Indonesian companies may raise a record $4 billion through initial public offerings this year amid rising domestic consumption and gains in Asia’s best performing stock market, the nation’s top underwriter said.

Slowing inflation and low interest rates are boosting domestic spending, encouraging companies to sell shares to expand, said Eko Yuliantoro, president director of PT Bahana Securities. Bahana helped companies raise $2.2 billion in IPOs and secondary offerings over the past 12 months, the most in Indonesia, according to data compiled by Bloomberg.

The Jakarta Composite index has risen 4.7 percent this year, the most among benchmark gauges for Asia’s 14 largest markets. Shares in Indonesia are trading at 17.9 times reported profits, the highest in Southeast Asia, while earnings are forecast to climb to 254.2 rupiah per share this year, the highest since at least December 2005, Bloomberg data show.

“Certain industries are taking advantage of the right momentum” to sell shares, Yuliantoro said in a June 27 interview. “Given the current global market condition, the key is growth as in earnings-per-share growth and for that people are willing to pay a premium.”

The Jakarta composite index rose 1.3 percent to 3,878.19 at the noon local-time break, set for a record close. Gains for the Indonesian index this year compare with a 0.8 percent drop in the MSCI Emerging Markets Index. Faster inflation among larger developing-nation peers from Brazil to India has driven up borrowing costs and reduced initial share sales.

Emerging Markets

The value of IPOs in Brazil has slipped 8 percent this year to $3.5 billion and India’s has sunk 74 percent to $753 million, according to data compiled by Bloomberg. Indonesian companies have raised $1.28 billion through IPOs so far this year, compared with about $320 million raised over the same period last year, the data show.

The Indonesian central bank forecasts the economy to grow as much as 6.5 percent this year, the fastest pace since 2004, helping companies such as PT Garuda Indonesia to expand. The nation’s largest airline ordered on June 21 25 Airbus SAS A320s after raising 4.3 trillion rupiah ($498 million) in an IPO in January, the biggest this year.

Bahana helped underwrite the sale of Garuda, along with that of PT Krakatau Steel, the state-owned steel producer. The company led PT Mandiri Sekuritas, Deutsche Bank AG and PT Danareksa Sekuritas in arranging equity and rights offerings in Indonesia over the past 12 months, according to Bloomberg data.

Inflation Outlook

Plans by companies to hold IPOs may be put on hold should the government raise subsidized fuel prices, spurring inflation, Bahana’s Yuliantoro said.

Crude oil prices have averaged $98.44 a barrel this year, compared with $78.47 over the same period last year. Fuel subsidies account for about 12 percent of government spending, official data show. The government is studying options for fuel subsidy cuts and the effect on inflation, Karen Agustiawan, president director of PT Pertamina, the state-owned oil company, said June 12.

“People wonder when fuel prices will rise,” Yuliantoro said. “It’s not that high inflation will automatically disrupt IPOs; it’s that there’s increased uncertainty.”

Indonesia’s consumer prices rose 5.98 percent in May from a year earlier, decelerating for a fourth straight month. Inflation may slow to 5.4 percent in June, according to a Bloomberg News survey of economists. Easing inflation has helped Bank Indonesia keep its benchmark interest rate at a near record low of 6.75 percent after raising it in February. China has increased borrowing costs four times since October and India lifted rates 10 times since the start of 2010.

Market ‘Friendly’

Morgan Stanley, which expects no further rate increases this year for Indonesia, boosted the nation’s market rating to “equal-weight” from “underweight.”

“The revised interest-rate trajectory for Indonesia implies a divergence from the rest of emerging markets, which was not previously in our economics forecasts,” Morgan Stanley analysts led by Jonathan Garner wrote in a June 28 note. It “is therefore equity market friendly,” they said.

Bahana has a 12-month forecast for the Jakarta Composite index of 4,350, said Teguh Hartanto, deputy head of research at the brokerage. That represents a gain of 14 percent from the June 28 close. The market was shut for a holiday yesterday.

Market conditions will likely stay conducive for share sales until the second half of next year, after which concern over political stability may increase before general elections are held in 2014, Yuliantoro said. President Susilo Bambang Yudhoyono’s second five-year term will end in 2014.

--With assistance from Mohammed Hadi in Hong Kong. Editors: Shiyin Chen, Allen Wan

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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