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NEWS UPDATES Asean Affairs        11  February 2011

Garuda's IPO seen as weak

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Those who arranged national carrier Garuda Indonesia's initial public offering (IPO) were bullish on Thursday, but the IPO was not that great.

Multiple sources said the IPO received a lukewarm response and could force local underwriters to absorb substantial losses.

"Garuda's IPO went smoothly according to our plan and procedures. It is successful by our own standards," Marciano Herman, president director of state brokerage firm and lead underwriter Danareksa Sekuritas, said without elaborating.

Harry Supoyo, president director of Mandiri Sekuritas, another underwriter, echoed Marciano's enthusiasm and said the IPO was successful as the shares were fully subscribed. "Everybody's happy," he said.

Market sentiment suggested differently, though. A number of fund managers said lead underwriters Danareksa Sekuritas, Bahana Securities and Mandiri Sekuritas could absorb hundreds of billions of rupiah in shares.

Sources said that Bahana would absorb Rp 300 billion (US$33.6 million) and Danareksa would absorb Rp 200 billion, while Mandiri Sekuritas was successful in selling its shares as it deals with a number of institutional investors. Foreign agents UBS and Citigroup reportedly failed to sell most of the shares set aside for foreign investors to purchase. Total proceeds from the IPO are expected to be Rp 4.75 trillion, though reports said the total default order would be around Rp 520 billion.

"Everybody is talking about that in the market," said a fund manager who is familiar with the sale. Foreign investors considered Garuda's price too expensive at Rp 750 per share, he added, saying they tried to bid at a range of Rp 450 to Rp 550 per share.

A source handling the IPO saidthat underwriters were struggling to overcome concerns about overpriced shares. "I have to admit, it's a tough job selling Garuda's shares. We even had some pulled-out orders," he said.

Garuda will debut on the Indonesia Stock Exchange today.

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