AS SPRING TRIES FOR AN IPO (AGAIN) THE GARUDA IPO HITS PROBLEMS

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By TESTCustomwebLP TESTCustomwebLP January 25, 2011 14:57

AS SPRING TRIES FOR AN IPO (AGAIN) THE GARUDA IPO HITS PROBLEMS

Garuda’s high guide price for its initial public offering has been raising concerns with investors, which is leading some to suggest that the airline might raise far less than the $1 billion it hoped for.

The low level of interest in the offering will be a serious blow to the airline, which completed a five-year debt restructuring in December and has made considerable progress over the past few years in improving its financial and safety performance.

Marketing of the Garuda issue was due to close at 5pm yesterday but sources report that the process had “gone very badly, especially with overseas investors”, with interest with European and US investors particularly low. As a result analysts expect the issue to raise about $350m in primary proceeds, with the shares priced at or near the bottom of the Rp750-Rp1,000 range set by the Indonesian government.

Some investors of note thought that the Garuda team had fallen over and hurt themselves just before setting the IPO price suffering some form or memory loss at the same moment, or maybe that they were looking at another company when setting the price. All in all our investor contacts say that the price is way off the mark and the offering has no hope of going forward without a price adjustment or government backing of some sort.

The banks advising on the Garuda issue are PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas, with Citigroup and UBS as international bookrunners.

Can fare increases keep pace with fuel and inflation in general?

Carriers, particularly those in the US and Europe have been through two years of fleet trimming and fare increases. However, these actions weren’t universal, as more than 55% of carriers in emerging markets—such as China, India, Russia and Latin America—increased their fleet size, their number of routes and their number of flights over the past two years. And now we have to wonder what is going to happen to those same airlines that are in the trap of falling ticket prices, overcapacity and increasing fuel costs. The news today is riddled with airlines lowering fares from Africa through to India and China. These are the airlines to watch as they will come under great pressure in 2011. Jet Airways in particular seems to be an airline to follow in this regard as it posts quarterly results in 2011.

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By TESTCustomwebLP TESTCustomwebLP January 25, 2011 14:57
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