Danareksa blamed for unfair IPO

JAKARTA (JP): The initial public offering of the state-owned PT Bank Dagang Negara (BNI) 1946 will be oversubscribed but the lead underwriter may have acted unfairly, according to several stock brokers.

"We have just experienced poor management of a state firm's public offering. And it could have a negative impact on future privatization programs," a senior manager of a joint-venture brokerage house said.

"Many investors told us they were very unhappy with the offering process, particularly with the poor distribution system for forms. They were also doubtful they would get BNI's shares through a fair pooling system," the manager added.

BNI has offered 1.08 billion shares, or 25 percent of its enlarged capital, to the public through a four-day initial public offering which ended last Thursday.

The BNI shares will be allotted on Nov. 15. Danareksa will refund investors on Nov. 21 before listing BNI's shares on the Jakarta and Surabaya stock exchanges on Nov. 26.

Fajar L. Sutandi of PT Sigma Batara told The Jakarta Post that investors were uneasy about problems in getting subscription forms.

"We failed to provide subscription forms to our clients who have sent their money to our office," Fajar said.

"I have learnt that Danareksa printed only 800,000 subscription forms for BNI's 1.08 billion share offering," he said.

The state-owned Danareksa Sekuritas is acting as the lead underwriter for the offering which is believed to be the largest issue ever made by a bank in Indonesia.

An investor told the Post he had canceled his order for 2,000,000 shares because his broker only had 5,000 shares.

Another dealer with a Hong Kong-based brokerage said the underwriter had violated procedures by selling fixed-allotment shares to individual investors.

"In this case, I think the market regulator should take firm action," he said.

"I also learnt that a well-connected businessman subscribed to up to 50 million shares of the fixed allotment category," he said.

"Therefore, I doubt the offering will meet the objective of the government's privatization program to democratize capital through share ownership," he said.

Fajar said that of all the BNI shares offered, 49 percent were allocated for foreign investors and 51 percent for domestic investors.

About 50 percent of the shares allocated for domestic investors were sold to institutional investors, including state- owned pension funds and insurance companies, through fixed allotments, meaning that investors will get the number of shares that they subscribe to.

The other 50 percent of domestically-allocated shares were sold via a pooling system. Under the system, in case of oversubscription, investors will not get the number of shares they subscribed to. Instead, the underwriters decide how to provide a proportionate number of shares as a percentage of investors' orders.

The brokers suggested that in future pooling systems should use a draw procedure and not a proportional allotment procedure.

Seventy-nine securities firms are acting as underwriters and sub-underwriters for BNI's initial public offering, while smaller brokerages are acting as agents.

Danarkesa, the lead underwriter, is underwriting 386 million shares of the shares, while three co-lead underwriters, PT BNI Securities, PT Penthasena and PT Bahana Securities, are underwriting 135 million shares each.

The 75 sub-underwriters were categorized into seven levels. Danareksa has allocated the number of shares to be underwritten by the sub-underwriters. The numbers range from 25 million shares for a level-one sub-underwriter to 600,000 shares for a level- seven.

The level-one sub-underwriters are Credit Lyonnais Capital Indonesia, Merrill Lynch Indonesia, ING Baring, Jardine Fleming Indonesia and Nomura Indonesia.

Despite the offering's sloppy management, the brokers were confident the shares would perform well.

"In the gray market, the stock has increased from Rp 950 to Rp 1,000," Goh Poh Heng from Citramas Securities said.

Goh predicted there would be heavy selling in the secondary market when the share price hits Rp 1,200.

He said that, unlike other state firms such as Telkom and Indosat, BNI was in an industry in which investors had other choices including cheap shares of large banks.

BNI's initial public offering, priced at Rp 850 a share, has a price-earning ratio of eight, which is below the sector's average of ten. (alo)