Gas company's IPO to be last privatization sale this year

Fitri Wulandari, The Jakarta Post, Jakarta

State-owned gas utility PT Perusahaan Gas Negara (PGN) is set to sell 30 percent of its shares (1.29 billion shares) through an initial public offering (IPO) next month, which will become the government's last privatization program this year.

PGN president WMP Simandjuntak said that the shares will be priced between Rp 1,300 and Rp 2,100 each.

The IPO is expected to raise between Rp 1.2 trillion (US$142 million) and Rp 2 trillion ($237 million) in cash.

"The proceeds will be split in half, between the government and PGN," Simandjuntak said.

But according to the company's prospectus, the government can increase the size of the IPO to 39 percent depending on demand. PGN previously insisted on the greater size to raise more funds for financing its gas pipeline projects.

The offering is scheduled to take place from Dec. 8 to Dec. 10 and the shares will be listed in the local stock exchanges on Dec. 15.

The government will use the proceeds to help finance this year's state budget deficit. It is confident that it can rake in around Rp 8 trillion in proceeds from this year's privatization programs, particularly following the successful ongoing IPO of state-owned Bank Rakyat Indonesia (BRI), which drew strong interest from investors (reports said that the IPO was 14 times oversubscribed). The BRI IPO raised around Rp 4.17 trillion in cash, of which Rp 2.6 trillion will go to the state coffer.

The government has appointed PT Danareksa Sekuritas, ABN Amro Asia Securities Indonesia and Credit Suisse First Boston Indonesia as underwriters of the PGN IPO.

The company will commence a roadshow on Monday in several Asian countries, United States, and Europe to lure foreign investors.

Some analysts have said that the PGN IPO will not be as successful as BRI's -- whose shares were offered at the top end of the price range target -- because traditionally utility stocks are valued lower than banking stocks.

But Daniel Iskandar of Danareksa disagreed, saying PGN would attract strong interest from investors because as a utility company, PGN has a more predictable revenue growth, and a stable U.S. dollar cash flow.

Moreover, as a major player, PGN has the capacity to grow and has a clear position in the country's energy market.

PGN plans to use the IPO proceeds to finance its gas pipeline transmission project from South Sumatra to West Java in a bid to cap the gas shortage on the heavily populated Java island.

However, Simandjuntak said that the proceeds from the IPO were still insufficient to finance the project, which needs an estimated $471 million funds for the first phase.

"It is not enough to finance our project. But we will seek other financing sources, as well as using our internal funding," Simandjuntak added.

The company works on the distribution, development, retailing and wholesaling of natural gas. As of June this year, PGN posted a net profit of Rp 422.2 billion.