Capital Raising Fakultas Ekonomi Universitas Indonesia
Overview of Financing Alternatives
Public Company
Asset Sale Equity Capital Markets
M&A Private Placement
Marketed Offering
Overnight Block Trade (Primary / Secondary)
Convertible / Exchangeable Bond
Rights Offering
Private Funding Alternatives
Private Company
Shareholder Loan
Credit Line
Private Placement
Initial Public Offering (IPO)
Reverse Takeover
Spin Off IPO
Follow-on Offering
Public Fund Alternatives
Debt Capital Markets
High Yield
High Grade
Capital Raising
A companys financing needs change constantly depending upon: Growth profile Credit rating Financial health / cash position Strategic planning M&A activity
2
Objective and use of proceeds (capital expenditures, acquisition,
working capital, refinancing, capital reallocation etc)
Capital structure position (gearing, capitalization, debt coverage, Interest coverage, impact on rating etc)
Cash flow profile (current and projected cash flow)
Stock price (overvalued, undervalued)
Global capital market condition and outlook (credit and equity market liquidity and sentiment)
Access to conventional financing (eg. bank loan)
Timing
Sector and business outlook
Pricing
Capital Raising
Considerations Between Raising Debt and Equity
Factors That Drive Decision Making Process
3
Capital Raising
Initial Public Offerings
First time listings, offer shares to public Expand financing alternatives
Follow-ons/ Rights Offerings
Primary offering post listing No dilution to existing shareholders (assuming rights are fully
exercised) Fully underwritten
Follow-ons/ Block Trades
Typically secondary sales Transaction is executed in an overnight or accelerated placement Priced relative to technical (size, float, liquidity, volatility) and
fundamental (research, earnings, valuation) benchmarks
Convertible Offerings
Hybrid securities Taps different shareholder base Priced relative to volatility, interest/credit profile, valuation
Equity Capital Market Financing Alternatives
4
IPO Process
Diversify Investor Base Efficient Means Of Realizing Value For Current Shareholders
Expand Financing Alternatives And Reduce Overall Cost Of Capital
Enhance Commercial Visibility
Reinforce Public Accountability
Attract And Retain The Best Management And Employees
Create Stock Currency For Acquisitions
Creates Liquidity For The Issues And Shareholders
Why Become a Public Company?
5
IPO Process
Who Will be Involved?
Independent Appraiser
Share Registrar
Public Relations Firm
Notary OTHERS
Industry Consultant
Printer
ISSUER
Assist issuer counsels and Bookrunner in matters of international law
Assist issuer counsels and Bookrunner in matters of Indonesian law
Prepare audited financial accounts, provide comfort letter
Underwriter Counsel Domestic
Underwriter Counsel International
Accountants
Bookrunner
Manage overall process together with Company & Shareholders
Legal audit, provide legal opinion
Issuer Counsel International
Draft prospectus / documentation and assist issuer in the process
Issuer Counsel Domestic
6
Phase I Preparation and Strategic Advice
Corporate governance
Shareholder structure
Legal and accounting preparation
Regulatory requirements
Selection of key advisors
Listing decision Offering structure & format
Phase II Due Diligence, Documentation and Regulatory Process
Kick-off: organisational meeting with advisors
Due diligence Prospectus drafting
Filing with exchange
Draft underwriting agreement/ documentation
Phase III Review and Marketing Preparation
Valuation Create marketing story
Prepare research analyst presentation
Prepare and rehearse roadshow presentation
Respond to exchange comments
Phase IV Offering
Release pre-deal research
Set size and price range
Print prospectus Roadshow presentations by management
Phase V Pricing and Closing
Determine offering price
After-market trading Closing Ongoing research coverage
Manage press strategy
Commence investor relations program
IPO Process
Overview of the IPO Process
Typically a 6 - 7 months process 7
IPO Process
Considerations on Sizing of Offering
Optimal IPO Size Create Liquidity For The Stock In The Aftermarket Secure Sustained, Quality Research Sponsorship
Fulfil Primary Capital Needs
Take Account Of Market Appetite And Environment
Comply With Regulatory Requirements: Typical Freefloat Aim Is > 20%
Satisfy Existing Shareholders Objectives
8
Overview After pre-marketing of research, Company
and bookrunners agree on a price range Starting on the first day of the roadshow,
and throughout its duration, investors place orders Orders include limit price and size of the
order Pricing after bookbuilding in accordance
with demand and price sensitivity Bookrunners Role Throughout the bookbuilding process, the
bookrunners will sell the issuance and provide clarification
On daily basis, keep track of the orders and record all orders placed through the syndicate
IPO Process
Bookbuilding Institutional Investors
250350 400
600750 800
1,000
1,250
1,500
0
400
800
1,200
1,600
2,000
1 2 3 4 5 6 7 8 9
US$m Tier I US$m Others
Illustrative Example of Daily Build-Up Demand Assuming $500m Equivalent IPO Size
Tier 1 Subscription Level: 2x
Overall Subscription Level: 3x
9
IPO Process
Pricing Mechanism
Valuation Range
Higher
Lower Research analyst presentation
Pre-Research publication
Price range at the time of preliminary prospectus
Preliminary prospectus distributed
IPO pricing agreed
IPO Price
The Path to the IPO Price
10
Stabilisation One of the bookrunners is appointed stabilisation agent by the company The stabilisation agent will have the possibility to use the overallotment
option (Greenshoe) as a stabilisation mechanism
Sales & Trading
Sell research product to market Maintain liquidity
Research Regular reports published Marketing of the company to investors Investor visits
Investor Relations / Corporate Brokerage
Investor Relations advice Investor Relations roadshows and conferences Market updates Information on trading flows Investor targeting
IPO Process
Post Listing Support
11
MNC Sky Vision US$227MM IDX IPO IPO Case Study
12
Issuer PT MNC Sky Vision Tbk (MSky)
Selling Shareholder PT Bhakti Investama Tbk
Total Shares Offered 1,413MM shares (2-% of enlarged TSO), upsized from 1,100MM shares (16% of enlarged TSO)
Listing Venue Indonesia Stock Exchange (IDX)
Primary/Secondary Approximately 60% primary, 40% secondary
Pricing/Listing Date June 22 / July 9, 2012
Offer Price (Price Range) IDR1,520 (IDR1,460 1,750)
Tranche Structure Institutional 99% / Retail 1%
Joint Global Coordinator Morgan Stanley, J.P. Morgan, MNC Securities
Use Of Proceeds 70% capex; 30% debt repayment, working capital
Domestic Underwriters Danareksa, MNC Securities
Lock Up 12 months on Company, 6 months on selling shareholder, 3 months of shares representing 5%
Transaction Highlights
Offering Size IDR2,174Bn / US$227MM
Implied Market Cap IDR10,713Bn / US$1,136MM (no greenshoe)
MNC Sky Vision US$227MM IDX IPO IPO Case Study
13
Bookbuilding in a Challenging Market Conditions
Source Capital IQ
85
90
95
100
105
1-May 16-May 31-May 22-Jun
JCI S&P 500 MSCI AxJ
-7% JCI -5% S&P 500
-10% MSCI AxJ
Start Book-Building Jun-18
Pricing Jun-22
Transaction was priced at IDR1,520 per share, implying a market capitalization of approximately US$1.1Bn MSky was valued at 15x FY2011 AV/EBITDA. Valuation
also represents a premium to regional and global pay TV operators on a forward AV/EBITDA basis
Volatile market conditions were
mitigated by a well-calibrated marketing strategy Significant orderbook buildup
on the first day from anchor investors enabled a books covered message to be communicated to the market, building momentum in the transaction
Roadshow was launched on the back of price insensitive shadow book
Deal was upsized on the back of strong demand from international accounts, increasing deal size from 16% to 20% of enlarged capital
Equity Capital Market Financing Alternatives
Follow-on Offerings: Block Trade Offering of primary /
secondary shares in an accelerated process, usually overnight
Distribution of shares through coordinated offering to institutional buyers
Advantages: speed of execution, minimize price risk and no marketing required
Disadvantages: this may not be price maximizing alternatives, as a block trade usually priced at discount
Bought Deal
Underwriters directly buy stock for overnight distribution
Overnight risk trade /capital commitment
Backstop Deal
Underwriters to provide a price range prior to launch, with an agreement to underwrite the shares at the wide end of the range
The profit arising from the difference of final clearing price and underwritten price will be shared
Overnight risk trade / capital commitment
Best Efforts Accelerated Bookbuild
Distribution of stock through organized offering to institutional and retail buyers
Orders are gathered in an overnight book building process post market close
14
Matahari Dept Store US$1.5Bn Re-IPO Re-IPO Case Study
15
Issuer PT Matahari Department Store Tbk (MDS)
Selling Shareholder Asia Color Company Ltd (CC) and PT Multipolar
Listing Venue Indonesia Stock Exchange (IDX)
Primary/Secondary 100% secondary
Pricing Date 25 March 2013
Free Float Post Deal 47.35% (post greenshoe)
Implied Market Cap IDR31,659Bn . US$3,257MM
Joint Global Coordinator Morgan Stanley, UBS, CIMB
Cornerstone Investors Commit 32% of base offer size: Blackrock, Fidelity, GIC, Schroders, Soros, Capital World, Azentus, EPF, MSIM, Hwang, Och-Ziff, T Rowe Price
Lock Up 12 months on Company, 6 months on Selling Shareholder, 3 months of shares representing 5%
Transaction Highlights
Offer Price (Price Range) IDR10,850 (IDR10,000 11,250)
Offering Size IDR14,406Bn / US$1,481MM
Matahari Department Store US$1.5Bn re-IPO Re-IPO Case Study
16
A landmark transaction in Asia and Indonesian capital markets
Largest IDX secondary selldown
Largest equity offering in Indonesia since 2008
Largest consumer/retail equity offering in SE Asia
Largest consumer/retail secondary equity offering in Asia ex-Japan
Largest department store equity offering since 2009
Transaction Highlights
Deal priced at IDR10,850, at the top half of the marketed range
Transaction was launched with 32% of the base transaction covered by marquee Tier-1 cornerstone investors, on the back of a successful cornerstone process
Bookrunners were able to guide investors to a valuation of 27x 2013E P/E, by highlighting MDS dominant market share, cash generation and earnings growth profile
Transaction was well oversubscribed, with c.74% allocated to long-only investors
Enhanced free float enables MDS to benefit from a special tax incentive for listed companies with a minimum 40% free-float, further enhancing MDS's earnings profile
Etisalat/XL Axiata US$510MM Block Trade Block Trade Case Study
17
Company PT XL Axiata Tbk (EXCL)
Vendor Etisalat International Indonesia
Discount Range 6% Discount to Close (IDR6,700); 4.1% Discount to 1 Day VWAP (IDR6,570); 0.7% Premium to 3 month VWAP
Market Cap US$6,014MM
Days of Trading 332 Days (Last 1 Month)
Pricing Date September 13, 2012
Price Range IDR6,100 - 6,300
Lock Up 90 Days
Joint Bookrunners Morgan Stanley, J.P. Morgan
Transaction Highlights
Total Offer Size IDR4,883Bn / US$510MM
Distribution Reg S / 144A
Third Largest Selldown Ever and Largest Telecommunication Selldown in Indonesia Since 1997
Etisalat/XL Axiata US$510MM Block Trade Block Trade Case Study
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0.0
5.0
10.0
15.0
20.0
3,600
4,500
5,400
6,300
7,200
1-Jan 20-Feb 9-Apr 28-May 16-Jul 13-Sep
Volume EXCL IDX
EXCLs Stock Price Performance Prior to Deal Against IDX; Rebased to EXCLs Share Price
IDR Shares (MM)
Source Bloomberg as of September 12, 2012
+9%
+48%
To mitigate against low liquidity of the
stock, a wall-crossing process was deployed prior to deal launch to engage key investors and in the process contributed to demand visibility in the market
Swift books covered message sent a strong signal to liquidity event specialists in the market, generating significant tailwind in orderbook momentum capable of covering the book by more than 1.5x
Deal was subsequently priced at the top of the marketed range (IDR6,300), at 6.0% discount to the close of the day (IDR6,700) representing a 2012E AV/EBITDA of 6.5x, a 12% premium to EXCLs closest comps (Indosat and Telkom)
Final orderbook was well oversubscribed by various bluechip institutions
Transaction was launched on the back of EXCLs share price closing at IDR6,700, within 7% of its all time high
Transaction represented 1 year worth of trading volume
Pros
Offers pre-emption rights to all
shareholders and protects them from dilution Allows existing shareholders to benefit from future upside
Rights can be traded (nil paid)
Generally underwritten prior to launch, creating certainty of proceeds
Could be used to raise a large amount of capital without advance shareholder approval
Cons
Significant dilution for
shareholders who do not take up rights, but no loss of value if they sell their rights
Current shareholders may not be willing or able to increase investment
May require a deep discount to current stock price (larger than in bookbuilding method), creating challenging optics Often seen as a last resort
Less of an opportunity to broaden the shareholder base
Rights offers are typically fully underwritten transactions through which an issuer can raise significant amount of proceeds from its existing shareholders Support from
existing shareholder(s) willing to take-up rights is critical
Excess shares not taken up through excess applications can be placed by underwriters to the public
Equity Capital Markets Financing Alternatives
Rights Offering
19
If shareholders are unable to exercise their right for legal/logistical reasons, they may be compensated by a cash payment equal to the difference between the net rump placement and underwriting price
Companies will issue rights to their existing shareholders upon record date
At that time, a fixed ratio of new shares that may be purchased per old share will be set
Existing shareholders will have the option to trade their rights during the subscription period or exercise the rights at the subscription price
Rights are valuable as they represent an economic interest to which investors are entitled. This right contains option value and can often be traded/transferred on the exchange where the common stock is listed
Existing Shareholders with Subscription Rights
Shareholders typically exercise their rights during the last few days of the subscription period for financing reasons and to ensure that the market price of the stock does not fall below subscription price
Equity Capital Markets Financing Alternatives
Mechanics of Rights Offering
Trade Rights
Exercise Rights
Do Nothing/Lapse Right
20
BNI US$1.2Bn Rights Issue Rights Offering Case Study
21
Issuer PT Bank Negara Indonesia Tbk (BNI)
Transaction Structure Rights Offering with RoI not exercising its Rights; then sells its rights to underwriters/new investors through a concurrent private placement
Market Cap IDR59Tn (US$6.6Bn)
Rights Price Range IDR2,300 IDR3,700
Offer Size IDR10.5Tn (US$1.171MM)
Offer Price IDR 3,100
Discount to Close 19.5%
P/Bv 2.18x
TERP IDR3,714
Discount to TERP 16.5%
Transaction Highlights
Rights Ratio 110,473 new shares for every 500,000 existing shares (1 for 4.5)
Size of Offering IDR10,461MM (US$1,171MM)
Lock Up BNI: 12 months, RoI: 6 months
Joint Bookrunners Morgan Stanley, Goldman Sachs, UBS, Credit Suisse, Macquarie, Bahana
IDR 3,400
11.7%
2.14x
IDR3,714
8.5%
IDR8,406MM (US$941MM)
Rights Offering Placement of Government Shares
Rights Offering Case Study
BNI US$1.2Bn Rights Issue
Unique structure with the RoI renouncing
its rights. The rights were excercised (by the local underwriter) and the underlying shares were sold to institutional investors via a bookbuild process
Significantly tighter discount to TERP compared to average Asian rights issues since 2009 (-25.8% discount to TERP for Asian precedents)
Tightest discount to TERP achieved for a Bank capital raising since the beginning of the financial crisis
Transaction Structure
Pre-offer, Republic of Indonesia (RoI)
was a 73.3% shareholder in BNI and has announced that it will not be taking up its rights shares
Brings the RoI stake to just under 60%, in line with the Governments long term target shareholding level
Increases the free float and liquidity of BNI
Makes BNI eligible to receive a 5% tax benefit, reserved for IDX listed issuers with a free float of over 40%
Equity Placement Mechanics
22
The Largest Indonesian Equity Offering since 2008 and The Largest Indonesian Financial Institution Equity Offering Ever
Pros Quick execution (Marketing
requires minimal management time)
Cheap debt (lower coupon / yield than straight debt)
Sale of equity at a premium / monetize future stock price growth
Substantial structural flexibility (currency, maturity, coupon, premium, issuer call, investor put and other innovative structural features)
Diversifies investor base No restrictive financial
covenants
Cons Potentially dilutive (although
less than straight equity Potential refinancing risk if
stock doesnt perform Prior to conversion, companys
debt increase
Debt security that is convertible into a fixed number of shares at the option of the holder Conversion price
determined at issue Lower coupon / yield
than straight debt due to the embedded conversion feature If conversion
occurs, sale of equity at a premium to todays price
If conversion does not occur, below market-rate debt financing
Equity Capital Markets Financing Alternatives
Convertible Bonds
23
Convertible Bond Issue
Features: Low yield debt
(subsidized through the sale of an equity option)
Sale of underlying shares at a premium and receipt of full proceeds at issue
Retention of voting rights and dividends in underlying shares until exchange
Credit spread of the Issuer but equity characteristics of the underlying stock are used
Significant structural flexibility maturity, put, call, premium, coupon and yield are all able to be adjusted to meet the specific requirements of the Issuer
A bond issued by Company A exchangeable into shares of Company B (usually a subsidiary or company in which the issuer owns a stake)
Exchanges into Shares of Company B
Converts into Shares of Company A
Company B
Owns Stake
Equity Capital Markets Financing Alternatives
Exchangeable Bonds
Company A
24
Common Uses of Proceeds General corporate
purposes
Refinancing maturing debt outstanding
Finance purchase price of acquisitions
Fund share repurchases / shareholder returns
Finance liability management opportunities (e.g. tendering for high-coupon debt outstanding)
Fund contributions to pension plans
Add leverage to support growth
Capital Structure Diagram
Tenor of Debt Securities
Senior Secured Debt
Senior Unsecured Debt
Subordinated Debt
Hybrids
Preferred Stock
Lowest Risk / Cost
Highest Risk / Cost
First Priority
Last Priority
< 9 mo. 3 - 7 Years 30 Years
Commercial Paper Medium-Term Notes
Senior Unsecured Subordinated Structured Retail Preferred Stock
Debt Capital Markets Financing Alternatives Capital Raising
25
Tower Bersama US$300MM High Yield Bonds High Yield Bonds Case Study
26
Issuer TBG Global Pte Ltd
Parent Guarantor PT Tower Bersama Infrastructure Tbk
Corporate Rating Ba2 Stable / BB Stable (Moodys / Fitch)
Format Reg S / 144 A
Issue Rating Ba3 / BB (Moodys / Fitch)
Type Senior Unsecured Notes
Offering Size US$300MM
Annual Coupon 4.625%
Joint Bookrunners Morgan Stanley, UBS
Yield 4.625%
Use of Proceeds Partial repayment of senior debt, repayment of existing List Co debt
Transaction Highlights
Maturity April 3, 2018 (5NC3)
Issue Price 100%
Orderbook was 13.7x oversubscribed at US$4.1Bn from more than 244 distinct investors. The 4.625% coupon is the lowest coupon ever achieved by an Indonesian high yield (non-SOE) corporate
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