17 Months on, Garuda Indonesia Returns to IPO Price
For Elvin Masassya, a director at the country’s largest pension fund Jamsostek, waiting for Garuda Indonesia’s stock to rise to at least the same level as its initial public offering more than 17 months ago must have seemed like an eternity.
On Tuesday, flag carrier Garuda’s stock climbed 4 percent to Rp 770, the highest since Feb. 10, 2011, when its shares were first sold to the public at Rp 750.
Its long-awaited rise above the IPO price underscored investors’ confidence in the airline’s prospects.
“Garuda’s stock has good long-term prospects, and that is starting to show,” Elvin said.
Jamsostek, which managed Rp 112 trillion ($11.9 billion) in funds last year, was one of the biggest buyers in Garuda’s IPO. Elvin refused to disclose the value of Jamsostek’s investment but said he remained positive and that the fund had increased its investment in Garuda.
Analysts in Jakarta said that growing demand for air travel by Indonesians in the coming years should benefit the country’s airlines. That has helped lift investor sentiment on Garuda, the only airline listed on the Indonesia Stock Exchange.
At Tuesday’s closing level, Garuda’s shares have risen 62 percent this year, outpacing the 7 percent gain in the benchmark Jakarta Composite Index.
Some institutional investors in Jakarta say Garuda has bright prospects, prompting them to accumulate shares. Rising purchasing power in Indonesia coupled with growing demand by local air travelers has benefited airline operators such as Garuda, they say.
“Garuda has shown improvement in its fundamental performance,” said Edwin Sebayang, head of research at MNC Securities.
Last month, Garuda president director Emirsyah Satar said domestic passenger numbers were expected to rise in the coming years. Last year there were about 60 million domestic passengers, with the amount forecast to increase to 90 million within a few years. International passengers are expected to account for an additional 30 million flyers in the future.
Garuda endured a difficult start as a publicly traded company. A day after the IPO, it fell as much as 23 percent in its debut on the Indonesia Stock Exchange before settling at Rp 620.
Lead underwriters Danareksa Sekuritas, Mandiri Sekuritas and Bahana Securities initially set a range of Rp 560 to Rp 850 for the offering, but then-State Enterprises Minister Mustafa Abubakar balked at the assessment, insisting the price should be higher. The ministry set Garuda’s share price at Rp 750 to Rp 1,100 per share.
Other individuals have been taking the opportunity to purchase shares even as others were exiting.
In April, Chairul Tanjung, one of the country’s richest businessman, bought a more than 10 percent stake in Garuda for more than $150 million. Chairul bought the Garuda shares at Rp 620 each from Danareksa Sekuritas and Mandiri Sekuritas. The airline’s underwriters had absorbed as much as 47 percent of the IPO.
Last week, Garuda was named Asia’s best regional airline as well as the world’s best regional airline by Britain-based airline service reviewer Skytrax. It beat out Bangkok Airways and Dragon Airlines in either category.
Garuda still faces some challenges. It posted a loss of $10.7 million in the first quarter, even as net income climbed by more than half in 2011 from a year before. The euro zone crisis threatens to curtail travel from Europe to Asia, and other local carriers such as Lion Air and AirAsia have been buying aircraft to boost travel to other destinations within Indonesia.