Coal Firm Adaro Surges in Indonesia's Biggest IPO

Shares in Indonesian coal firm PT Adaro Energy leapt as much as 59 percent in their market debut on Wednesday after the company raised $1.3 billion 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.

"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 has said it expects 2008 net profit to jump to 1.55 trillion rupiah ($169.7 million) from 133 billion rupiah last year, on strong coal prices and steady demand.

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

Adaro offered 34.8 percent 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 Indonesia's second biggest coal miner, PTAdaro 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.

In the afternoon session, the stock was up at 1,750 rupiah in a market up 1.2 percent. Investors had scrambled to get shares in allotment in Indonesia's hottest IPO. The offer price valued the company at around 35.3 trillion rupiah ($3.83 billion).

Attractive Valuation

Valuations of miners have become expensive, making Adaro's shares attractive with its stock priced at 3.7 times 2009 expected earnings based on the underwriter's revised forecast after they increased their coal price assumption this week.

Shares in PT Bumi Resources, the largest coal miner, trade at 10.5 times 2009 forecast earnings, while the local arm of Thailand's Banpu, PT Indo Tambangraya Megah, trades at 9.3 times 2009 estimated earnings, according to Reuters Estimates.

Earlier on Wednesday, Adaro said its production in the first half rose by 7.4 percent to 18.26 million tons, while revenue rose around 11 percent to $725 million.

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.

Adaro had said 69.15 percent of the 11.1 billion shares offered would be allocated to five investors who already had stakes in PT Adaro Indonesia.

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