Top Ten Largest IPO in Indonesia

Last mid-May, Facebook is officialy listing on the Nasdaq with ticker ‘FB’. The Initial Public Offering (IPO) is touted as the largest IPO in history, because the value was very large, ie US$ 16 billion or more. The expression 'the largest IPO in history' may make you curious, is that so? That the IPO of FB is the largest IPO of all time? That's why I made a little research, and here are the results.

Based on data from www.renaissancecapital.com, The IPO of FB is not the largest. There are at least six IPOs with a larger value than FB. Surprisingly, not all the biggest IPO came from United States of America, but mostly from China and Japan. Here is a list of the fifteen largest IPO in history. Note that IPO Year is when the stock was first offered to the public, not when the stock listing. Value is in millions of US$.

No.	Company	Exchange	IPO Year	Value
1	Agricultural Bank of China	Hong Kong and Shanghai	2010	19,228
2	Industrial and Commercial Bank of China	Hong Kong and Shanghai	2006	19,092
3	Nippon Telegraph and Telephone Mobile	Tokyo	1998	18,099
4	Visa	New York	2008	17,864
5	AIA Life Insurance	Hong Kong and Shanghai	2010	17,816
6	Ente Nazionale per l'energia Elettrica	New York	1999	16,452
7	Facebook	NASDAQ	2011	16,007
8	General Motors	New York	2010	15,774
9	Nippon Telecom	Tokyo	1987	15,301
10	Deutsche Telekom	New York	1996	13,034
11	Bank of China	Hong Kong and Shanghai	2006	11,186
12	Dai-ichi Mutual Life Insurance	Tokyo	2010	10,986
13	American Telephone and Telegraph	New York	2000	10,620
14	Rosneft Oil Company	Russian Trading System	2006	10,421
15	Glencore International Plc	Hong Kong and London	2011	10,316

From the above data, it appears that the largest IPO ever is the IPO of Agricultural Bank of China (ABC). ABC released 25.4 billion shares during the IPO, to be listing at the Hong Kong Stock Exchange on July 16, 2010. With the initial price of HK$ 3.48 per share, the company then reap HK$ 88.4 billion, equivalent to US$ 19.2 billion. ABC itself was the fourth largest bank in China, behind the Bank of China, China Construction Bank, and Industrial and Commercial Bank of China. In contrast to Indonesia and other countries, banks in China are 'classified' based on its sector/industry, and maybe that’s why the overall economy of the country are growing faster, as every major banks are focus on their specialization respectively.

Interestingly, just like the IPO of FB, the IPO of ABC is also failed (‘failed’ here is based on perspective of the stock buyer). When this article was written, ABC was in position 3.11, or 10.6% lower than its IPO price, after nearly two years since it kicked off the trading. During this time, the peak price of the stock was 4.38, or only 25.9% higher than its IPO price, before then dropped again.

And if we look further, the biggest IPO is not always the most successful ones (from the perspective of investors who join the IPO). In fact most of it is likely to fail. Here is a list of the initial stock price compared to the current price (as of June 5, 2012), of the seven new listed companies between 2008 to 2011. The price is in their respective currency.

No.	Company	IPO Price	Current Price	Change (%)
1	Facebook	38.00	26.90	(29.2)
2	Glencore	530.00	334.35	(36.9)
3	Agricultural Bank of China	3.48	3.11	(10.6)
4	AIA Insurance	19.68	25.20	28.0
5	General Motors	33.00	21.11	(36.0)
6	Dai-ichi	140,000	79,900	(42.9)
7	Visa	44.00	114.16	159.5

As you can see above, only AIA and Visa that made profit for their public investors. However bear in mind that the current price above is also influenced by the condition of bear market lately.

Then what about Indonesia? Well, here are the ten largest IPO in Indonesia in the last five years (2007 - 2011). You can check for yourself what is he latest price of these stocks, then compare it with the initial prices, whether higher or lower. IPO Value is in billions of Rupiah, while IPO Price is in Rupiah per share.

No.	Ticker	Company	Listing at	IPO Value	IPO Price
1	ADRO	Adaro Energy	Jul-08	12,253	1,100
2	ICBP	Indofood CBP	Oct-10	6,292	5,395
3	BYAN	Bayan Resources	Aug-08	5,558	5,800
4	BORN	Borneo Lumbung Energy	Nov-10	5,175	1,170
5	GIAA	Garuda Indonesia	Feb-11	4,752	750
6	SIMP	Salim Ivomas Pratama	Jun-11	3,480	1,100
7	JSMR	Jasa Marga	Nov-07	3,468	1,700
8	ITMG	Indo Tambangraya Megah	Dec-07	3,164	14,000
9	INDY	Indika Energy	Jun-08	2,765	2,950
10	KRAS	Krakatau Steel	Nov-10	2,682	850

Based on the above data, the story of 'Big IPO' in Indonesia was also the same: Only Indo Tambangraya (ITMG) and Jasa Marga (JSMR) who scored substantial gains. While others only made small gain, and some others even go down.

Maybe you will ask a question: How can the above companies held their IPO’s with some tremendous value? How could they convince a lot of people at once (retail investors) to buy their shares in bulk, whereas the price can be very high, or the company itself is bad? I mean, if a company is that good that the people were after it (so the value of the IPO could be very large), then why the stock price was dropped?

So here goes the explanation. The party that responsible for the IPO is not the company itself, but the securities firm or investment bank that appointed as the underwriter. Whether all the new shares are sold or not, at a high price or not, is entirely dependent on the expertise of these underwriters. The underwriter is like a salesman, and the company is the owner of the goods. As the owner of the goods, then of course the company wants results of the sales as much as possible, even if the goods are in bad quality. And that is the job of the underwriter. So if the underwriter is a ‘champion’, then an empty keg can be sold at exorbitant prices. But if the underwriter is mediocre, then no matter how good the goods (the company), the value of IPO is usually small.

Some example of 'empty paper sold at exorbitant prices' was when Benakat Petroleum (BIPI) held its IPO in February 2010, and successfully scooped Rp1.6 trillion (about US$ 150 million). That is a very large amount of money that paid for a company that never made profit (even up to first quarter of 2012, BIPI still suffered losses of US$ 6 million). While the 'good stuff that is sold at a low price', for example was Surya Esa Perkasa (ESSA). ESSA only made Rp153 billion or about US$ 14 million from its IPO in January 2012, while in fact it was an excellent company with ROE of more than 100% in July 2011.

But that does not answer the question: how could a salesman (underwriter) sell the shares to reap enormous funds? The answer is just like the marketing in general: They have to be smart in promoting their ‘products’. What matters is not how good the quality of the goods sold, but the 'look' of the goods in the eyes of the buyer. Actually, the quality of the shares which sold through the IPO can be seen from the prospectus, which shown the comprehensive information about the stock and the company concerned. But not all prospective investors read the prospectus, because it can be hundreds of pages, or even because the prospectus is not available for them. So the more practical way is to read the news in the media or analysis from the third parties. Sometimes, or even often, the success of an IPO (from the perspective of its underwriters) is determined by the ‘package’ of information which presented by these third parties. While the prospectus? Nobody read it.

The problem is, it's hard to find a neutral third party in this case, because they might just assist the underwriter in the promoting the IPO. Some time ago before Facebook (FB) held its IPO, one of the leading global media, Reuters, lifted news that the IPO is oversubscribed. While almost at the same time, another global media, Bloomberg, raised the news that is exactly the opposite, that the IPO had no buyers. Which is correct? Nobody knows.

Anyway based on my own experience, it is very difficult to find an ideal IPO if the goal is to invest, where the problem does not lie on its poor performance of the issuer, but on the price that is usually too high. Warren Buffett also advise all investors to stay away from any IPO’s. But if you are still interested in hunting the IPO, then at least now you know one of the tips, including if you are targeting short-term gains: An IPO with a great value is not always a promising profits, instead tends otherwise. Any coverage about the oversubscribe and others that people talked about, nor is a guarantee that the IPO will be successful (again, in the perspective of the buyer). Often, a good IPO is a small one that is not gained public attention.

By the way, did you know why Buffett avoids IPO? First, because he never targeted short-term gains. And secondly, because at the IPO, the seller is only one party (the company, through their selling agents), where the company is of course know very well about themselves, while the prospective investors probably knew nothing. So in this case the investor's position as a buyer is less favorable. This is different when investors buy shares of a company in the market (not in the IPO), where the seller is an investor as well, so that the position of the buyers and the sellers are equal. And yep, you're right, the same thing applies when an issuer held rights issues.

Original article was written at June 6, 2012