Rarely has a straight equity placement been shrouded in such mystery as the 10% sale of Bank Danamon on November 4. The deal was marketed by UBS and Danareksa as a 490 million share institutional equity deal with an indicative price range at a 3% to 6% discount to the closing price of Rp3,575. The leads went on to build a book with top tier investors and had it covered at a 2.8% discount by market close.
At this point, however, the market heard that one investor, Temasek, had purchased the whole deal at Rp3,550, a 0.7% discount, paying Rp1.739 trillion ($189 million). Institutional investors that had put in clear offers and had them accepted, ended up with nothing.
In the days that followed it transpired that Temasek was not the only investor, but that 33 other institutions had come into the transaction at the higher price. Their identities remain unclear.
What does seem clear is that the whole episode has left a bad smell in the market. On the one hand, PPA says the deal was not marketed properly with the aim of maximizing returns for the government. On the other, the market blames PPA for an opaque and vague sales process that has left investors and market participants confused.
Some now believe Indonesia will find it a lot harder to sell the remaining bank stakes it is looking to offload before the end of the year, despite the fact investors are clamouring to get exposure to the sector. A process discount could well emerge.
Here we talk to Raden Pardede vice president director of Indonesia's Perusahan Pengelola Aset (PPA) about the agency's side of the story.
What actually happened with the Bank Danamon placement?
At the time of the offer, UBS went out with a discount of 3% to 6% : ie the offer was from Rp3,400 to Rp 3475 a share. But at the same time, the Minister of Finance has his own floor price and if the price of the deal is below his floor price, then we cannot entertain it.
The floor price is not disclosed. This is because while we understand there will be a floor price, the exact floor price is the Minister's call. From the government's point of view it's understandable that the vendor would like to have as much proceeds as possible. So based on that, it is very useful if UBS can entertain any bids above this band [of the 3% to 6% discount].
What is important is that we said to UBS: 'Why don't you just widen the band, so if one investor wants to invest at Rp3500 or Rp3550 you can entertain that?' I think it is quite strange to use this band structure. It makes it difficult for UBS to entertain investors who want to buy at Rp3500 for instance.
But from the vendor's point of view - in this case PPA - it is quite strange. We want to entertain as many investors as possible, especially if those investors will increasing the amount of proceeds to the government.
In the end there were 34 investors that actually bid Rp3550 and above, so that's why we were 2.6 times oversubscribed at Rp3550. Why would we want to entertain bids below that when the government wants to maximise proceeds?
Who wanted to pay a higher price than the deal was being offered at?
It was not only Temasek but 34 investors in total. Temasek is the major among them with 38% of the deal. It didn't go 100% to Temasek.
Where did the other 33 investors come from?
I cannot say where they came from. But 60% of the deal went to foreign investors. It wasn't just Temasek that pitched from the foreign investors' side. In the end Danareksa sold everything.
It seems very strange that you are supposed to be the vendor and yet the Minister of Finance has a secret floor price. Who is actually running the show?
PPA is running the show, but there is a floor price.
Why can't you reveal what the floor price is before the deal? Surely this makes it very hard to sell?
We cannot reveal the floor price. There is an understanding that there will be a floor price. It is in the envelope and made by the minister himself. We can open this envelope as soon as the book building is closed. When we opened it we found it was Rp3,500 and that is why any investor below Rp3,500 could not be entertained.
This seems an extraordinary way of going about building a book. How can the lead managers be expected to go out and try to sell anything if they don't know if the vendor will accept the price?
In talking to UBS from the very beginning, we asked them if they could 'expand the band'. We believe UBS should entertain any investor even above their band. That's the thing. So why did UBS put this quote price from Rp3,400 and Rp3,475? We don't understand why they went out with this kind of band.
Do you think this deal might have harmed your standing with international investors who'd put in orders thinking the process would work like a normal placement, only to be told they'd got nothing?
I think it's their call. I think UBS probably made a mistake in their thinking about the market itself at the time. Of course given the way they go to the market there is probably some kind of information that is not clear for investors. I believe that they could have gone back to investors and told them that because there are quite a number of investors above that band, the band will now go up. So they can explain that to our investors. I don't know why they didn't do that.
So you want the process to be more flexible?
That's basically our idea. Of course they can set a lower band at say Rp3,400, but they cannot rule out investors that want to invest at Rp3,500, Rp3,600 or Rp3,700. They have to entertain that. But that is not the case. In your article we saw that you said 100% went to Temasek. But that's not right.
Will this process be repeated with the other sales you're looking to do by the end of the year?
Yes there are several we're thinking about. We're preparing to divest minority stakes held by the government. The divestment very much depends on the Ministry of Finance because Indonesia now needs more financing in order to fill the gap in our budget deficit.
And the Minister of Finance will decide those sales?
And will they happen before the end of the year due to your commitments to the IMF?
They will be but I cannot say what the time will be. This is a market placement.
Do you think PPA will still be around in one year's time? Will you have sold everything by then?
The future of PPA, the mandate for PPA, is to divest all the ex-IBRA assets. It's not the same as privatization. These stakes were owned by the private sector before and we have to divest them. But before we divest all these assets, we have to package them and make some kind of value enhancement just like what we are doing right now. Then we have to sell them at the appropriate time.