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IPO Prospect of Garuda Indonesia

Currently you are probably concerned with the IPO. After yesterday two companies namely Skybee (SKYB) and Golden Retailindo (GOLD) officially listing on the Stock Exchange (IDX), today two other companies are also scheduled to enter the stock exchange. They are Bank Jabar Banten and Indopoly. All these newcomers are attractive enough to be used as speculation tool, because almost all of the stock will experience a very high price volatility on their first trading day. And that was also experienced by SKYB and GOLD that rose fairly great yesterday. But those companies are relatively small so they are not so attractive for you the blue chip players. Well, one of the companies that will also enter the exchange and potentially become a member of bluchip because the size is great enough, is Garuda Indonesia.

As we’ve known, Garuda Indonesia or GI is the biggest airlines company in Indonesia, with total assets on 2009 amounted to Rp14.8 trillion, or slightly greater than Semen Gresik (SMGR). Because its relatively big size, GI potentially becomes the new member of blue chip in IDX. The question is, will it be a long-term bluchip or for speculation only?

If we look at the balance sheet, from the total asset of Rp14.8 trillion, only Rp3.2 trillion is equity, while the rest of it are debts and minority interest. What’s need to be researched is, the initial capital placed on 2009 was Rp9.1 trillion. But because GI experienced income deficit amounted to Rp7.4 trillion, then its equity reduced to Rp1.7 trillion only. Once it is patched up with revaluation surplus, addition on foreign exchange, and addition from paid-in capital, GI’s equity was finally improved to Rp3.2 trillion.

From this side, we can see that GI’s balance sheet is not healthy, because the company did not generate profits in the form of retained earnings, but it was a deficit. The deficits that occurred is even quite considerable so that it almost drained the equity. But fortunately, the management can still outsmart it by patching it with all the 'tools' available.

The debt incurred by GI is also quite big, which is Rp11.6 trillion, or almost 80% of its total assets. Pretty big, huh? All this time, GI was troubled with debt. GI had convert Bank Mandiri’s debt into shares, after the company couldn’t pay the debt. GI itself will hold IPO after getting the permission from the European Credit Agency (ECA) as one of the creditors, which may also means that ECA has stated that: ‘We don’t want if our debts are converted into shares. What does it for? It’s better if you did IPO, and the funds generated from it can be used to pay off your debt to us’. On 2006, GI had debts to ECA amounted to US$504 million. And as we’ve already known, GI has plan to use the funds amounted to Rp3 trillion (in average) from IPO to corporate restructuring including debt restructuring.

Although it seems pretty bad, but GI’s performance in the last three years was improving, though still not good enough to cover the loss due to the bad performance of the company in the past. The deficit amounted to Rp7.4 trillion on 2009 was considered better than in 2007, which reached Rp9.4 trillion. Unfortunately, GI’s performance on 2009 dropped if compared with 2008, where the revenue decreased from Rp19.3 trillion into Rp17.9 trillion. Its net income was indeed rose from Rp975 billion into Rp1,018 billion. However, that increase was due to the extraordinary income account (extraordinary items) outside the company’s operational, amounted to Rp123 billion, which was generated from debt restructuring with Bank Mandiri. If the post wasn’t exist, then GI’s net income on 2009 was only Rp895 billion, or dropped compared with 2008.

In conclusion, GI is too risky to be collected for the long term investment. However, given its stock may be liquid because of the number of shares released is quite great (there is no information about precisely how many billion of shares released, but certainly quite big), then GI may be used for short-term trading tool. Moreover, most likely in the future GI will quite often release information that could raise the price of its shares, for example 'GI purchases four new aircrafts' or 'GI aims to increase the income of the Hajj season flights' or 'GI restructure its debts', and the like. Because after all, GI is a big and popular company, even though it turns out that it’s blank. So if later GI officially traded in the stock exchange, then you can go in because almost certain that the shares will soar. But once you feel that you’ve got maximum profit, then it’s better to go out immediately, and not coming back. Unless if you like to speculate in the short-term.

So, whether the IPO would be able to make GI’s performance in the future improve? Probably not, because the funds generated from IPO amounted to Rp3 trillion was relatively small to be used as capital to expand the business, and it’s likely will run out to restructure debts. It maybe a different story if GI is sold to foreign investors who inject funds in enormous amount. As we’ve known, there are lots of companies in Indonesia, either the state-owned company or private that have better performance after being acquired by the foreign company.

But we still don’t know about GI’s performance on first quarter 2010, or the first semester 2010. Who knows there’s improvement.

Performance rating on 2009: BB

About IPO

With the official entry of SKYB and GOLD in the stock exchange, then IDX already has seven new members during 2010. And the next candidates will soon follow, which are Indopoly and Bank Jabar Banten. In the future, some companies will also hold IPO including the big ones, which are Garuda Indonesia and Berau Coal. It seems that there are so many companies that did IPO, right? Although it looks quite a lot, but up until this article was written, only nine companies (including Indopoly and Bank Jabar) that have officially enter the exchange. It means that it still far from IDX’s target, which is 25 companies during 2010, and it is already second semester.

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