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Expensive Guarantees

Underwriters of Garuda’s February 2011 IPO Poised to Suffer Major Losses.


Bali News: Expensive Guarantees
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(8/7/2011)

The three official underwriters for the Initial Public Offering (IPO) for the national flag carrier Garuda Indonesia have taken large financial hits as the result the guarantees issued in connection with the share offering.

The companies who underwrote the IPO on February 12, 2011, saw the share price of Garuda Indonesia (GIAA) drop immediately by 6% from the initial project share price of Rp. 750, sliding further to a close at the end of the first day of trading to Rp 620 per share.

The decline occurred despite assurances from the Minister for State-Owned Enterprises Mustafa Abubakar that that share price of Garuda was sound and would easily recover to the Rp. 750 initial share price within 6 months of the IPO. Now, with that anniversary looming, Garuda is trading below Rp. 500 per share – more than 33% below the Rp. 750 price-per-share pegged at the IPO launch.

Reflecting the impact of underwriting the Garuda IPO, Bisnis Indonesia reports that the three underwriters showed the following repective change of fortunes at the end of Semester I 2011 as compared to the same period in 2011:

Mandiri Securities profits declined 71.6% from Rp. 43.08 billion in Semeseter I 2010 to only  Rp. 12.23 billion at the end of Semester I 2011.

• Bahana Securities took a hammering, showing a loss of Rp. 186.06 billion at the end of Semester I 2011 when one year before the booked a modest profit of Rp. 12.13 billion. That’s a decline of 1,633%.

Danareksa Securities also suffered a major downturn, moving from a profit of Rp. 38.78 billion for Semester I 2010 to a loss of Rp. 132.35 for Semester I 2011. That represents a 441% reversal of fortunes.

The loss suffered by the security underwriters of the Garuda IPO, however, remain largely paper losses recorded in the respective companies’ book of accounts and linked to the current share price of Garuda. The loss will only become actual losses for the underwriters when the shares taken up by each are released for sale to the market place. 

However, the three security companies are on the horn of a financial dilemma. Forced to purchase the Airline’s shares at the IPO due to a lack of generalized interest in the IPO, a sudden release of those large chunks of the same shares, for whatever reason, could further depress the share price of Garuda.

Quoted in Bisnis Indonesia, the president of research and analysis for PT Valbury Asia Securities, Nico Omer Jonckheere, said the three underwriters continue to protect the share price of Garuda. Describing how the lack of interest in the IPO compelled the underwriters to take up the unwanted shares, the companies will eventually have to face up to a market correction vis-à-vis their respective portfolio of shares for the National Carrier.

Related Article

[Garuda’s Share Prices Down 31%]

 


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