Last updated: February 11, 2011 4:25 pm

Garuda shares tumble at take-off

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Shares in Garuda, Indonesia’s flag carrier, fell as much as 23 per cent as they began trading in Jakarta, marking a disastrous finale to the state-owned airline’s troubled initial public offering.

The carrier’s poor trading debut, blamed on high pricing in a weak market, could have big implications for the pricing and timing of other privatisations planned by the Indonesian government, which bankers say may need to be delayed.

Emirsyah Satar, Garuda chief executive, blamed the price drop on market conditions, insisting the IPO had been a success because it had raised $524m to finance the airline’s modernisation and expansion plans.

The stock closed Friday’s trading session 17 per cent below the IPO price at Rp620 ($13.57), having touched Rp580.

The IDX Composite, the Indonesia exchange’s benchmark index, was up 0.5 per cent on the day.

The index has fallen about 10 per cent this year.

“It is normal that the share price is down, as the market is in a bearish trend,” Mr Satar said.

“The more important thing is, we’re going to use the proceeds for expansion. This will make Garuda better.”

Analysts said the price slide – the only first-day fall in a newly-listed Indonesian stock in the past year – was also a result of aggressive overpricing of the offering, which discouraged fresh investment by those who did not secure shares in the IPO.

Sentiment was also strongly affected by a large overhang of stock caused by the failure to sell 3.2bn of the 6.3bn shares on offer, even though the listing eventually went ahead at Rp750 a share, the bottom of the indicative range.

The unsold shares were absorbed by the three banks that underwrote the issue: PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas. Citigroup and UBS organised the international marketing but did not act as underwriters.

Few international buyers were thought to have invested in the IPO, with many saying the indicative range of Rp750 to Rp1,000 was too high.

Bankers said that the airline was advised to market the issue at Rp580 to Rp800, but the Indonesian government insisted on a higher price.

Garuda’s IPO is the first of up to 10 state enterprises due for flotation this year, including banks, airport and port operators, construction companies and resource businesses.

Its performance will be watched by other carriers including Vietnam Airlines, which has said it is considering an IPO.

The weak debut caps a painful five-year restructuring for Garuda, during which it was banned from European airspace for several years due to safety concerns.

Garuda cleared the way for the IPO last year by settling loan agreements with dozens of lenders.

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