Philip Morris International Inc., which makes and sells Marlboro cigarettes outside the U.S., has started testing investor appetite for an over $1.5 billion sale of its shares in its Indonesian operation, according to people familiar with the situation, in what would be one of the biggest share sales in Southeast Asia this year.
New York-based Philip Morris is talking to potential investors to place its shares in PT HM Sampoerna Tbk. through a rights issue and hopes to start taking orders from Sept. 21, one of the people said. Another person said a decision to go ahead would depend on market conditions.
The sale will allow Philip Morris to comply with a pending stock-exchange rule requiring all Indonesia-listed companies to have at least 7.5% of their shares in public hands. Philip Morris currently owns 98.2% of the unit, which has a market capitalization of about $23.6 billion.
Philip Morris is the top cigarette manufacturer in Indonesia, the world’s second-largest market for cigarettes after China. Given the limited number of freely traded shares in PT HM Sampoerna Tbk. (HMSP.JK), it is unclear at what price the shares would be sold to investors.
The deal, if successful, would be the second largest equity-market transaction in Southeast Asia after a $1.7 billion initial public offering by Thailand’sJasmine Broadband Internet Growth Infrastructure Fund (JASIF.TH) in January. Deal activity in the region has been slowing due to volatile markets and Indonesia has been one of the worst hit.
Indonesia’s Jakarta Composite Index is down 15.6% in the year through Tuesday’s close, the worst performer in Asia. The market has been rocked this year by a combination of negative events. Weaker-than-expected demand from China has put pressure on commodity prices, which has hurt Indonesia’s producers and exporters. At home, President Joko Widodo’s plans to increase economic growth through infrastructure spending have been met with disappointment as projects fail to mature and the government rolls out new protectionist policies.
In late June, Philip Morris announced that the unit had engaged investment banks to assist in evaluating options for meeting the stock exchange’s mandatory float requirement, which takes effect Jan. 30, 2016. The statement didn’t name the banks or specify the amount to be raised, and Philip Morris declined to give further details.
Goldman Sachs Group Inc., Credit Suisse Group AG, CitiBank Inc., J.P. Morgan and local firm Mandiri Sekuritas are managing the share placement.
Bankers will be meeting investors in Indonesia, Singapore, Hong Kong, Malaysia and London for about two weeks to gauge interest in Sampoerna shares, one of the people said.
Sampoerna sells clove cigarettes and is the distributor of Philip Morris’s Marlboro brand in Indonesia. The share should result in additional cash for Philip Morris without ceding any control in the Indonesia business. If successful, the sale will be the biggest such divestments in Indonesia this year.