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Capital Markets

Indonesia: Garuda IPO hits turbulence

IPO suffers from high pricing; Debt restructuring completed after five years

It was meant to be the crowning moment for Garuda, Indonesia’s national airline. After a debt restructuring, a turnaround in its finances and an overturn of an EU safety-related ban, the carrier was supposed to cap off all its recent achievements with a successful IPO.

But its stock market debut last month proved a big disappointment after share prices fell by as much as 23% during the first day of trading.

Although the company’s management blamed poor market conditions, aggressive pricing was the real culprit. The shares were priced at an indicative range of Rp750 to Rp1,000, 18 times next year’s earnings, much higher than global peers. It certainly proved too expensive for foreign investors, most of whom gave the deal a wide berth.

More than half the shares were left unsold even though the offer eventually priced at the bottom of the range. Local firms Bahana Securities, Danareksa Sekuritas and Mandiri Sekuritas, underwriters on the deal, had to absorb 3.2 billion shares. Citi and UBS helped market the shares internationally but were not underwriters.

Satisfied management

Still, Garuda’s management claimed it was satisfied with the IPO after it raised $524 million, much more than it originally wanted.

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