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Foreign Airlines Eyeing a Share of Garuda Indonesia

Cathay Pacific and Delta Airlines Seeking a 10.88% Share of Garuda and Seats on Board of Directors and Commissioners

(1/15/2012) Hong Kong-based Cathay Pacific Airlines and U.S. carrier Delta Airlines are both vying to purchase 10.88% of the chares of Indonesian national flag-carrier Garuda Indonesia.

According to Bisnis Indonesia, two executives who are privy to high-level decisions now underway with Garuda confirmed that the two foreign airlines have asked PT Nikko Securities Indonesia to assist them in acquiring the necessary shares for the partial ownership.

“Nikko has approached the guarantors of the initial public offering who still hold shares. At this time the process of negotiating a price continues. However, the IPO underwriters are asking for prices above the current market price,” a source told Bisnis Indonesia.

Information provided by Nikko Securities indicate a strategic investor desires to buy the necessary outstanding shares from the underwriter for Rp. 500 (US$0.05) per share, a price that is lower than the initial IPO offering of Rp. 750 (US$0.08) per share and also lower than the current trading price on the Indonesian Stock Exchange.

The foreign carriers are also seeking one seat each among the directors and commissioners of Garuda Indonesia as part of their share acquisition proposal.

The Deputy Minister for State-Owned Enterprises (BUMN), Parikesit Suprapto,  was unprepared to make comment when contacted by the press. But he did confirm that discussions had taken place between the IPO underwriters and a strategic investor.

Suprapto said: “We have put everything in the hands of the security underwriters from the initial IPO. This process includes PT Danareksa Sekuritas, PT Bahana Securities and PT Mandiri Sekuritas.”

Harianto Solichin, the President Director of Nikko Securities was out of town and unavailable to comment on this developing story.

In the financial report of Garuda Indonesia for September 2011, the three underwriters of the Garuda IPO together with PT Danareksa hold 10.88% of the company shares or 2.46 million shares.

At the time of the IPO, the three underwriter were compelled to pay out Rp. 1.85 trillion (US$205.5 million) for the block of 2.46 million outstanding shares.

The Chief Director of Danareksa Sekuritas, Marciano Herman, said he had no information of specific strategic investors, but did continue that discussions were ongoing with potential strategic investors. The Chief Directors of Mandiri Sekuritas and Bahana Securities, refused to discuss specifics of any discussions with potential strategic investors.

The underwriters for the Garuda were, to some extent, left holding the bag when the IPO for Garuda Indonesia was launched. Because the asking price of Rp. 750 per shares was deemed too high, the public take up of available shares was lackluster, requiring the underwriters to step up and purchase Rp. 2.3 trillion (US$255 million) in unsubscribed share certificates.

As a precautionary step and in the event a private investor cannot be found, a State-owned insurance company is being groomed to potentially purchase the share certificates from the underwriter.

Rumor of a possible takeover of the outstanding shares by a private investor has precipitated a rally in the share price of Garuda Indonesia on the Indonesian Stock Exchange.