Capital Raising

Fakultas Ekonomi Universitas Indonesia

Overview of Financing Alternatives
Public Company
Asset Sale
Equity Capital
Markets
M&A Private
Placement
Marketed Offering
Overnight Block Trade
(Primary / Secondary)
Convertible /
Exchangeable Bond
Rights Offering
Private Funding
Alternatives
Private Company
Shareholder
Loan
Credit
Line

Private
Placement

Initial
Public
Offering
(IPO)
Reverse
Takeover
Spin Off
IPO
Follow-on
Offering
Public Fund
Alternatives
Debt Capital
Markets
High
Yield
High
Grade
Capital Raising
A companys financing needs change
constantly depending upon:
Growth profile
Credit rating
Financial health / cash position
Strategic planning
M&A activity
2

Objective and use of proceeds (capital expenditures, acquisition,
working capital, refinancing, capital reallocation etc)
Capital structure position (gearing, capitalization, debt coverage,
Interest coverage, impact on rating etc)
Cash flow profile (current and projected cash flow)
Stock price (overvalued, undervalued)
Global capital market condition and outlook (credit and equity
market liquidity and sentiment)
Access to conventional financing (eg. bank loan)
Timing
Sector and business outlook
Pricing






Capital Raising
Considerations Between Raising Debt and Equity

Factors That Drive
Decision Making
Process
3
Capital Raising
Initial Public
Offerings
First time listings, offer shares to public
Expand financing alternatives
Follow-ons/
Rights Offerings
Primary offering post listing
No dilution to existing shareholders (assuming rights are fully
exercised)
Fully underwritten
Follow-ons/
Block Trades
Typically secondary sales
Transaction is executed in an overnight or accelerated placement
Priced relative to technical (size, float, liquidity, volatility) and
fundamental (research, earnings, valuation) benchmarks
Convertible
Offerings
Hybrid securities
Taps different shareholder base
Priced relative to volatility, interest/credit profile, valuation
Equity Capital Market Financing Alternatives
4
IPO Process
Diversify Investor Base Efficient Means Of Realizing Value
For Current Shareholders
Expand Financing Alternatives And
Reduce Overall Cost Of Capital
Enhance Commercial Visibility
Reinforce Public Accountability
Attract And Retain The Best
Management And Employees
Create Stock Currency For
Acquisitions
Creates Liquidity For The Issues
And Shareholders
Why Become a Public Company?
5
IPO Process
Who Will be Involved?
Independent
Appraiser
Share
Registrar
Public
Relations Firm
Notary
OTHERS
Industry
Consultant
Printer
ISSUER
Assist issuer counsels and
Bookrunner in matters of
international law
Assist issuer counsels and
Bookrunner in matters of
Indonesian law
Prepare audited financial
accounts, provide comfort
letter
Underwriter Counsel
Domestic
Underwriter Counsel
International
Accountants
Bookrunner
Manage overall process
together with Company &
Shareholders
Legal audit, provide legal
opinion
Issuer Counsel
International
Draft prospectus /
documentation and assist
issuer in the process
Issuer Counsel
Domestic
6
Phase I
Preparation and
Strategic Advice
Corporate
governance
Shareholder
structure
Legal and
accounting
preparation
Regulatory
requirements
Selection of key
advisors
Listing decision
Offering structure &
format
Phase II
Due Diligence,
Documentation
and Regulatory
Process
Kick-off:
organisational
meeting with
advisors
Due diligence
Prospectus
drafting
Filing with
exchange
Draft
underwriting
agreement/
documentation
Phase III
Review and
Marketing
Preparation
Valuation
Create marketing
story
Prepare research
analyst
presentation
Prepare and
rehearse
roadshow
presentation
Respond to
exchange
comments

Phase IV
Offering
Release pre-deal
research
Set size and price
range
Print prospectus
Roadshow
presentations by
management

Phase V
Pricing and
Closing
Determine offering
price
After-market trading
Closing
Ongoing research
coverage
Manage press
strategy
Commence investor
relations program


IPO Process
Overview of the IPO Process
Typically a 6 - 7 months process
7
IPO Process
Considerations on Sizing of Offering
Optimal IPO Size
Create Liquidity For The Stock
In The Aftermarket

Secure Sustained, Quality
Research Sponsorship
Fulfil Primary Capital Needs
Take Account Of Market Appetite
And Environment
Comply With Regulatory
Requirements: Typical Freefloat Aim Is > 20%
Satisfy Existing Shareholders Objectives
8
Overview
After pre-marketing of research, Company
and bookrunners agree on a price range
Starting on the first day of the roadshow,
and throughout its duration, investors
place orders
Orders include limit price and size of the
order
Pricing after bookbuilding in accordance
with demand and price sensitivity
Bookrunners Role
Throughout the bookbuilding process, the
bookrunners will sell the issuance and
provide clarification
On daily basis, keep track of the orders
and record all orders placed through the
syndicate
IPO Process
Bookbuilding Institutional Investors
250
350
400
600
750
800
1,000
1,250
1,500
0
400
800
1,200
1,600
2,000
1 2 3 4 5 6 7 8 9
US$m Tier I US$m Others
Illustrative Example of Daily Build-Up Demand
Assuming $500m Equivalent IPO Size
Tier 1
Subscription
Level: 2x
Overall
Subscription
Level: 3x
9
IPO Process
Pricing Mechanism
Valuation
Range
Higher
Lower
Research
analyst
presentation
Pre-Research
publication
Price range
at the time of
preliminary
prospectus
Preliminary
prospectus
distributed
IPO pricing
agreed
IPO Price
The Path to the IPO Price

10
Stabilisation
One of the bookrunners is appointed stabilisation agent by the company
The stabilisation agent will have the possibility to use the overallotment
option (Greenshoe) as a stabilisation mechanism
Sales &
Trading
Sell research product to market
Maintain liquidity
Research
Regular reports published
Marketing of the company to investors
Investor visits
Investor
Relations /
Corporate
Brokerage
Investor Relations advice
Investor Relations roadshows and conferences
Market updates
Information on trading flows
Investor targeting
IPO Process
Post Listing Support
11
MNC Sky Vision US$227MM IDX IPO
IPO Case Study
12
Issuer PT MNC Sky Vision Tbk (MSky)
Selling Shareholder PT Bhakti Investama Tbk
Total Shares Offered
1,413MM shares (2-% of enlarged TSO), upsized from 1,100MM shares
(16% of enlarged TSO)
Listing Venue Indonesia Stock Exchange (IDX)
Primary/Secondary Approximately 60% primary, 40% secondary
Pricing/Listing Date J une 22 / J uly 9, 2012
Offer Price (Price Range) IDR1,520 (IDR1,460 1,750)
Tranche Structure Institutional 99% / Retail 1%
Joint Global Coordinator Morgan Stanley, J .P. Morgan, MNC Securities
Use Of Proceeds 70% capex; 30% debt repayment, working capital
Domestic Underwriters Danareksa, MNC Securities
Lock Up
12 months on Company, 6 months on selling shareholder, 3 months of
shares representing 5%
Transaction Highlights
Offering Size IDR2,174Bn / US$227MM
Implied Market Cap IDR10,713Bn / US$1,136MM (no greenshoe)
MNC Sky Vision US$227MM IDX IPO
IPO Case Study
13


Bookbuilding in a Challenging Market Conditions

Source Capital IQ
85
90
95
100
105
1-May 16-May 31-May 22-J un
J CI S&P 500 MSCI AxJ
-7% JCI
-5% S&P 500
-10%
MSCI
AxJ
Start Book-
Building Jun-18
Pricing
Jun-22
Transaction was priced at IDR1,520 per share, implying a
market capitalization of approximately US$1.1Bn
MSky was valued at 15x FY2011 AV/EBITDA. Valuation
also represents a premium to regional and global pay TV
operators on a forward AV/EBITDA basis



Volatile market conditions were
mitigated by a well-calibrated
marketing strategy
Significant orderbook buildup
on the first day from anchor
investors enabled a books
covered message to be
communicated to the market,
building momentum in the
transaction
Roadshow was launched on
the back of price insensitive
shadow book
Deal was upsized on the back
of strong demand from
international accounts,
increasing deal size from
16% to 20% of enlarged
capital
Equity Capital Market Financing Alternatives
Follow-on Offerings: Block Trade
Offering of primary /
secondary shares in
an accelerated
process, usually
overnight
Distribution of shares
through coordinated
offering to
institutional buyers
Advantages:
speed of execution,
minimize price risk
and no marketing
required
Disadvantages:
this may not be price
maximizing
alternatives, as a
block trade usually
priced at discount

Bought Deal
Underwriters
directly buy stock
for overnight
distribution
Overnight risk trade
/capital commitment
Backstop Deal
Underwriters to
provide a price range
prior to launch, with an
agreement to
underwrite the shares
at the wide end of the
range
The profit arising from
the difference of final
clearing price and
underwritten price will
be shared
Overnight risk trade /
capital commitment

Best Efforts
Accelerated
Bookbuild
Distribution of
stock through
organized offering
to institutional and
retail buyers
Orders are
gathered in an
overnight book
building process
post market close

14
Matahari Dept Store US$1.5Bn Re-IPO
Re-IPO Case Study
15
Issuer PT Matahari Department Store Tbk (MDS)
Selling Shareholder Asia Color Company Ltd (CC) and PT Multipolar
Listing Venue Indonesia Stock Exchange (IDX)
Primary/Secondary 100% secondary
Pricing Date 25 March 2013
Free Float Post Deal 47.35% (post greenshoe)
Implied Market Cap IDR31,659Bn . US$3,257MM
Joint Global Coordinator Morgan Stanley, UBS, CIMB
Cornerstone Investors
Commit 32% of base offer size: Blackrock, Fidelity, GIC, Schroders, Soros,
Capital World, Azentus, EPF, MSIM, Hwang, Och-Ziff, T Rowe Price
Lock Up
12 months on Company, 6 months on Selling Shareholder, 3 months of
shares representing 5%
Transaction Highlights
Offer Price (Price Range) IDR10,850 (IDR10,000 11,250)
Offering Size IDR14,406Bn / US$1,481MM
Matahari Department Store US$1.5Bn re-IPO
Re-IPO Case Study
16

A landmark transaction in Asia and
Indonesian capital markets
Largest IDX secondary selldown
Largest equity offering in Indonesia
since 2008
Largest consumer/retail equity
offering in SE Asia
Largest consumer/retail secondary
equity offering in Asia ex-Japan
Largest department store equity
offering since 2009

Transaction Highlights
Deal priced at IDR10,850, at the top half
of the marketed range
Transaction was launched with 32% of
the base transaction covered by marquee
Tier-1 cornerstone investors, on the back
of a successful cornerstone process
Bookrunners were able to guide investors
to a valuation of 27x 2013E P/E, by
highlighting MDS dominant market share,
cash generation and earnings growth
profile
Transaction was well oversubscribed,
with c.74% allocated to long-only
investors
Enhanced free float enables MDS to
benefit from a special tax incentive for
listed companies with a minimum 40%
free-float, further enhancing MDS's
earnings profile
Etisalat/XL Axiata US$510MM Block Trade
Block Trade Case Study
17
Company PT XL Axiata Tbk (EXCL)
Vendor Etisalat International Indonesia
Discount Range
6% Discount to Close (IDR6,700); 4.1% Discount to 1 Day VWAP
(IDR6,570); 0.7% Premium to 3 month VWAP
Market Cap US$6,014MM
Days of Trading 332 Days (Last 1 Month)
Pricing Date September 13, 2012
Price Range IDR6,100 - 6,300
Lock Up 90 Days
Joint Bookrunners Morgan Stanley, J .P. Morgan
Transaction Highlights
Total Offer Size IDR4,883Bn / US$510MM
Distribution Reg S / 144A
Third Largest Selldown Ever and Largest Telecommunication Selldown in Indonesia Since 1997
Etisalat/XL Axiata US$510MM Block Trade
Block Trade Case Study
18
0.0
5.0
10.0
15.0
20.0
3,600
4,500
5,400
6,300
7,200
1-J an 20-Feb 9-Apr 28-May 16-J ul 13-Sep
Volume EXCL IDX
EXCLs Stock Price Performance Prior to Deal
Against IDX; Rebased to EXCLs Share Price
IDR Shares (MM)
Source Bloomberg as of September 12, 2012
+9%
+48%

To mitigate against low liquidity of the
stock, a wall-crossing process was
deployed prior to deal launch to engage
key investors and in the process
contributed to demand visibility in the
market
Swift books covered message sent a
strong signal to liquidity event specialists in
the market, generating significant tailwind
in orderbook momentum capable of
covering the book by more than 1.5x
Deal was subsequently priced at the top of
the marketed range (IDR6,300), at 6.0%
discount to the close of the day (IDR6,700)
representing a 2012E AV/EBITDA of 6.5x, a
12% premium to EXCLs closest comps
(Indosat and Telkom)
Final orderbook was well oversubscribed
by various bluechip institutions
Transaction was launched on the back of
EXCLs share price closing at IDR6,700, within
7% of its all time high
Transaction represented 1 year worth of trading
volume
Pros


Offers pre-emption rights to all
shareholders and protects
them from dilution
Allows existing
shareholders to benefit from
future upside
Rights can be traded (nil
paid)
Generally underwritten prior to
launch, creating certainty of
proceeds

Could be used to raise a large
amount of capital without
advance shareholder approval

Cons


Significant dilution for
shareholders who do not take
up rights, but no loss of value
if they sell their rights

Current shareholders may not
be willing or able to increase
investment
May require a deep discount to
current stock price (larger than
in bookbuilding method),
creating challenging optics
Often seen as a last resort
Less of an opportunity to
broaden the shareholder base

Rights offers are
typically fully
underwritten
transactions through
which an issuer can
raise significant
amount of proceeds
from its existing
shareholders
Support from
existing
shareholder(s)
willing to take-up
rights is critical
Excess shares not
taken up through
excess applications
can be placed by
underwriters to the
public

Equity Capital Markets Financing Alternatives
Rights Offering
19
If shareholders are unable to exercise their right
for legal/logistical reasons, they may be
compensated by a cash payment equal to the
difference between the net rump placement and
underwriting price

Companies will issue
rights to their existing
shareholders upon
record date
At that time, a fixed
ratio of new shares
that may be
purchased per old
share will be set
Existing shareholders
will have the option to
trade their rights


during the
subscription period or
exercise the rights at
the subscription price

Rights are valuable as they represent an
economic interest to which investors are entitled.
This right contains option value and can often be
traded/transferred on the exchange where the
common stock is listed

Existing
Shareholders
with
Subscription
Rights
Shareholders typically exercise their rights during
the last few days of the subscription period for
financing reasons and to ensure that the market
price of the stock does not fall below subscription
price
Equity Capital Markets Financing Alternatives
Mechanics of Rights Offering
Trade Rights
Exercise Rights
Do Nothing/Lapse Right
20
BNI US$1.2Bn Rights Issue
Rights Offering Case Study
21
Issuer PT Bank Negara Indonesia Tbk (BNI)
Transaction Structure
Rights Offering with RoI not exercising its Rights; then sells its rights to
underwriters/new investors through a concurrent private placement
Market Cap IDR59Tn (US$6.6Bn)
Rights Price Range IDR2,300 IDR3,700
Offer Size IDR10.5Tn (US$1.171MM)
Offer Price IDR 3,100
Discount to Close 19.5%
P/Bv 2.18x
TERP IDR3,714
Discount to TERP 16.5%
Transaction Highlights
Rights Ratio 110,473 new shares for every 500,000 existing shares (1 for 4.5)
Size of Offering IDR10,461MM (US$1,171MM)
Lock Up BNI: 12 months, RoI: 6 months
Joint Bookrunners Morgan Stanley, Goldman Sachs, UBS, Credit Suisse, Macquarie, Bahana
IDR 3,400
11.7%
2.14x
IDR3,714
8.5%
IDR8,406MM (US$941MM)
Rights Offering Placement of Government Shares
Rights Offering Case Study
BNI US$1.2Bn Rights Issue

Unique structure with the RoI renouncing
its rights. The rights were excercised (by
the local underwriter) and the underlying
shares were sold to institutional investors
via a bookbuild process
Significantly tighter discount to TERP
compared to average Asian rights issues
since 2009 (-25.8% discount to TERP for
Asian precedents)

Tightest discount to TERP achieved for a
Bank capital raising since the beginning of
the financial crisis
Transaction Structure


Pre-offer, Republic of Indonesia (RoI)
was a 73.3% shareholder in BNI and
has announced that it will not be
taking up its rights shares
Brings the RoI stake to just under
60%, in line with the Governments
long term target shareholding level
Increases the free float and liquidity of
BNI
Makes BNI eligible to receive a 5% tax
benefit, reserved for IDX listed issuers
with a free float of over 40%
Equity Placement Mechanics

22
The Largest Indonesian Equity Offering since 2008 and
The Largest Indonesian Financial Institution Equity Offering Ever
Pros

Quick execution (Marketing
requires minimal
management time)
Cheap debt (lower coupon /
yield than straight debt)
Sale of equity at a premium /
monetize future stock price
growth
Substantial structural
flexibility (currency, maturity,
coupon, premium, issuer call,
investor put and other
innovative structural features)
Diversifies investor base
No restrictive financial
covenants
Cons

Potentially dilutive (although
less than straight equity
Potential refinancing risk if
stock doesnt perform
Prior to conversion, companys
debt increase


Debt security that is
convertible into a
fixed number of
shares at the option
of the holder
Conversion price
determined at issue
Lower coupon / yield
than straight debt
due to the embedded
conversion feature
If conversion
occurs, sale of
equity at a premium
to todays price
If conversion does
not occur, below
market-rate debt
financing

Equity Capital Markets Financing Alternatives
Convertible Bonds
23
Convertible Bond Issue
Features:
Low yield debt
(subsidized through
the sale of an
equity option)
Sale of underlying
shares at a
premium and
receipt of full
proceeds at issue
Retention of voting
rights and dividends
in underlying
shares until
exchange



Credit spread of the Issuer but equity characteristics of the
underlying stock are used
Significant structural flexibility maturity, put, call, premium,
coupon and yield are all able to be adjusted to meet the specific
requirements of the Issuer




A bond issued by Company A exchangeable into shares of Company B
(usually a subsidiary or company in which the issuer owns a stake)
Exchanges into
Shares of Company B
Converts into Shares
of Company A
Company B
Owns Stake
Equity Capital Markets Financing Alternatives
Exchangeable Bonds
Company A
24
Common Uses of
Proceeds
General corporate
purposes
Refinancing maturing
debt outstanding
Finance purchase
price of acquisitions
Fund share
repurchases /
shareholder returns
Finance liability
management
opportunities (e.g.
tendering for high-
coupon debt
outstanding)
Fund contributions to
pension plans
Add leverage to
support growth
Capital Structure Diagram

Tenor of Debt Securities

Senior Secured Debt
Senior Unsecured Debt
Subordinated Debt
Hybrids
Preferred Stock
Lowest Risk /
Cost
Highest Risk /
Cost
First Priority
Last Priority
< 9 mo. 3 - 7 Years 30 Years
Commercial Paper
Medium-Term Notes
Senior Unsecured
Subordinated
Structured
Retail Preferred Stock
Debt Capital Markets Financing Alternatives
Capital Raising
25
Tower Bersama US$300MM High Yield Bonds
High Yield Bonds Case Study
26
Issuer TBG Global Pte Ltd
Parent Guarantor PT Tower Bersama Infrastructure Tbk
Corporate Rating Ba2 Stable / BB Stable (Moodys / Fitch)
Format Reg S / 144 A
Issue Rating Ba3 / BB (Moodys / Fitch)
Type Senior Unsecured Notes
Offering Size US$300MM
Annual Coupon 4.625%
Joint Bookrunners Morgan Stanley, UBS
Yield 4.625%
Use of Proceeds Partial repayment of senior debt, repayment of existing List Co debt
Transaction Highlights
Maturity April 3, 2018 (5NC3)
Issue Price 100%
Orderbook was 13.7x oversubscribed at US$4.1Bn from more than 244 distinct investors. The 4.625%
coupon is the lowest coupon ever achieved by an Indonesian high yield (non-SOE) corporate