Coal firm Adaro jumps 60 pct in Indonesia's biggest IPO

Shares in coal producer PT Adaro Energy Tbk leapt as much as 60% in their market debut after the Indonesian coal firm priced the issue lower than expected and raised $1.3bn in the country’s largest ever initial public offering.

The oversubscription and strong debut of Asia’s third biggest IPO this year outside Japan, according to Thomson Reuters data, is in contrast to many deals that were scrapped in the last few months due to a severe downturn in global equity markets.

Investors were eager to get hold of Adaro’s shares on Wednesday due to their relatively low offer price in the wake of a boom in commodities.

”It was largely driven by sentiments about the commodity sector. I think all IPOs related to commodities, at least in the short to medium term will be good, especially those related to energy,” said Amica Darmawan, Jakarta-based analyst at First State Investment.

Adaro expects 2008 net profit to jump to 1.55tr rupiah ($169.7m) from 133bn rupiah last year, on strong coal prices and steady demand.

The firm’s first-half output rose 7.4% to 18.26m tonnes with revenue up about 11% at $725m.

Adaro offered 34.8% of its enlarged share capital last week, with majority of the proceeds to be used to acquire five affiliated firms. After the acquisition, Adaro Energy will control the country’s second biggest coal miner, PT Adaro Indonesia, at a time of soaring coal prices.

Indonesia is the world’s largest thermal coal exporter and its miners have gained from strong demand from China and India and supply constraints that have pushed thermal coal prices to record highs.

Adaro’s shares opened at 1,500 rupiah ($0.164) each, up from the IPO price of 1,100 rupiah a share ? set near the top end of its initial 1,050-1,125 rupiah band after being oversubscribed five times.

The stock ended the morning session at 1,760 rupiah while the broader market rose 1.2%. The offer price valued Adaro at around 35.3tr rupiah ($3.83bn).

At the intraday high, Adaro’s market value rose to $6.1bn, making it the second biggest coal firm on the bourse after Bumi Resources Tbk which commands a market value of $14.6bn.

Adaro’s IPO was priced at about 7 times 2009 estimated earnings compared with a price to earnings ratio of 10.5 for PT Bumi Resources Tbk, Indonesia’s largest coal miner.

Highlighting the strong interest in Adaro’s IPO, hundreds of poor and unemployed people were brought in buses last week to Jakarta’s posh business district from the slum districts to stand in line for potential investors.

ATTRACTIVE VALUATION

”Any companies coming to the market with relatively low valuation will be highly appreciated,” said Franco Sutedjowidjojo, head of research at Ciptadana Securities, adding that Adaro’s shares could jump to 2,100-2,400 rupiah.

Indonesian coal miners trade at lower valuations compared with their Asian peers. The average 2009 PE for three Indonesian miners was only around 10.5 times compared to 18 times of China Shenhua Energy, and 14 times for China Coal Energy Co. Ltd.

For 2009, Adaro expects a net profit of 4.8tr rupiah on net sales of 24.3tr, up from an expected 16.0tr sales this year.

Several big foreign investors active in Asia have grumbled they were shut out of Adaro’s IPO despite heavy overseas interest in Southeast Asia’s largest economy. The deal underscores the opacity that sometimes plagues Indonesia.

Indonesian investment firm PT Saratoga Investama Sedaya will remain the single biggest shareholder in Adaro with 14.9% stake after the IPO. Saratoga is owned by Indonesian enterpreneur Edwin Soeryadjaya, who on his own controls 4.3% stake in Adaro.

Adaro said around two thirds of the 11.1bn shares offered were allocated to five investors who already had stakes in PT Adaro Indonesia.

They are Farallon Capital, Kerry Coal, the Government of Singapore Investment Corp (GIC), Citigroup and Goldman Sachs.

By Harry Suhartono and Evelyn Djuwidja, Reuters