Garuda Indonesia’s initial public offering (IPO) has been scaled back dramatically, after receiving a poor response from foreign investors.
Indonesia’s government has set its price at 750 rupiah (US 8 cents) per share, the bottom of its earlier price range, which went as high 1,100 rupiah per share. The Indonesian government has also decided to only sell 26.7% of its equity. This includes the 7.2% stake held by state-owned Bank Mandiri.
Garuda earlier aimed to sell as much as 36% equity. Under the new arrangement, the share sale will raise 4.77 trillion rupiah ($530 million), of which 3.3 trillion will go to Garuda and 1.45 trillion to Bank Mandiri. This state-owned bank is using the IPO to cash out and recoup money it had earlier lent the carrier. Garuda had persuaded the bank to turn debt into equity on the promise that the bank would get its money back through the IPO.
Garuda in recent months cleared much of its debt and plans to use the money from the IPO for aircraft pre-delivery payments. It has Boeing 737-800s and 777-300ERs on order.
The minister of state-owned enterprises, Mustafa Abubakar, told reporters in Jakarta that as much as 80% of the shares would be sold to domestic investors. “It’s not because there’s a lack of appetite from foreign investors, but we want domestic investors to be a part of our flag carrier,” he says.
Industry sources, however, say foreign investors were reticent about investing in Garuda, particularly at the higher end of the 750-1,100 rupiah price range. A 1,100-rupiah-per-share price would have made Garuda more expensive than Singapore Airlines, as measured by price/earnings and enterprise value/price ratios, say the sources.
Garuda has a strong brand in Indonesia, but it faces increased competition from low-cost carriers, such as Indonesia AirAsia, and at the higher end it faces competition from premium carriers, such as Singapore Airlines.
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