PGE stock has yet to close higher than IPO price
Pertamina Geothermal Energy’s (PGE) stock price took a dramatic nosedive on the first day of trading on Feb. 24, hitting the auto rejection lower limit, before finally closing back to the initial public offering (IPO) price of Rp 875 (5.7 US cents) per share on the same day. Since then, the stock has been closing below its IPO price.
There seemed to be a high appetite for the new and renewable energy arm of the state-owned energy giant PT Pertamina, which trades under the ticker PGEO, since the IPO was oversubscribed by 3.8 times.
However, after opening at Rp 925 per share on its first day of trading, PGE’s stock price dropped to Rp 815 and hit the auto rejection lower limit. The stock bounced back to close at its IPO price that day but then fell back the day after and has been failing to return to its IPO price at closing after trading for a week.
There are several issues discussed in public that may have cast doubt over the company that is slated to have 1,272 megawatts of installed capacity by 2027 from the current 672 MW.1
The first issue is the nature of the geothermal industry itself. PGE’s prospectus admits that geothermal reserves estimation is a probabilistic activity, so the company cannot guarantee that its reserves data will accurately reflect the company's actual results.2 Furthermore, a geothermal company’s operational costs are huge, with 40 to 60 percent going to exploration activities alone, and there is a 60 to 75 percent failure rate.3
The second issue is fear of state-owned enterprises (SOEs) prioritization. However, the company has sold only 25 percent of its shares; 75 percent of the company’s ownership remains in Pertamina’s hands. Furthermore, House of Representatives Commission VI legislator Andre Rosiadie argued that the IPO was a better option than taking out loans, since the company’s finances would not be burdened by loan repayment and the public listing could push for transparency and good corporate governance at the company.
PGE managed to raise Rp 9.05 trillion by selling 10.35 billion shares during the IPO. The company will use the funds for capital expenditure to develop 600 MW of installed capacity until 2027 and diversify to other products, such as green hydrogen, in the next two to three years. Moving forward, PGE finance director Nelwin Adriansyah said the company would issue green bonds and other financing alternatives to finance its development plans.
Based on the Indonesian Central Securities Depository (KSEI) records, as of Feb. 24, 17.21 percent of PGE's shares were owned by foreigners and 7.79 percent by local investors. Deputy SOEs Minister Pahala Mansury confirmed that there was a Middle East-based company taking part in the IPO, through the Indonesia Investment Authority (INA), with around 20 percent of combined ownership.4
The foreign company is said to be Masdar, a United Arab Emirates SOE that has a strong presence in the renewable energy market in Indonesia. It is said that Masdar and INA control, respectively, 15 percent and 5 percent of PGE’s shares.
Previously, Masdar chief executive officer Mohamed Jameel Al Ramadhani had said that Masdar's strategic investment in PGE would complement the company's already strong foothold in Indonesia, the second largest geothermal market in the world.
Just last year, Masdar signed agreements with Tuas Power, EDF Renewables and PT Indonesia Power to explore developing up to 1.2 GW of solar capacity in Indonesia for exports to Singapore. The year before that, Masdar had developed the 145 MW Cirata floating solar PV in a joint venture with PT Pembangkitan Jawa Bali Investasi (PJBI), a subsidiary of state-owned electricity company PT PLN. It is the biggest floating solar plant in Southeast Asia.
A number of analysts in the capital market said that PGEO shares book-building process failed to garner much interest. One reason is because the stock valuation price was unattractive.
"In general, the valuation is too expensive, and the market has been quiet since last December," said one source.
Many investors, especially large institutions, tend to seek short-term profits in the hope of obtaining a premium price during the book-building process. That way they can resell the shares for a decent profit.
Due to the lack of interest, the government assigned the Indonesia Investment Authority (INA), which previously succeeded in bringing Masdar Group from the UAE to participate in PGE's IPO, as an anchor to keep the share prices of state-owned enterprises (SOEs) stable in the market.
For Pertamina, Masdar was a familiar partner. Previously it collaborated with Pertamina New & Renewable Energy (Pertamina NRE) to build a PLTS in the Rokan Block, Riau.
Masdar reportedly entered through the INA. Both took 20 percent of PGEO shares through an IPO with a composition of 15 percent Masdar and 5 percent INA.
Due to the lack of interest in the book-building process, the SOEs Ministry asked PGE to enter through the secondary market to attract retail investors instead.
Meanwhile, Masdar is rumored to have an interest in buying PGEO shares at higher than market prices because of diplomatic interests. Normally, large institutions would get a discount from the IPO price during book building. "Usually negotiations are done with each investor," said another source.
Masdar and INA rely on a long-term strategy by seeking profits through dividend distribution. On the other hand, according to different sources, the company from Abu Dhabi is currently exploring investment opportunities in the Nusantara Capital City project.
Sources in the capital market admit that now is not the right time to hold an IPO. Global investors are concerned that the United States Federal Reserve will raise interest rates to 5.5 percent or more. The general sentiment in the global market is unlikely to improve soon.
But SOEs Minister Erick Thohir does not want to delay PGE's IPO any longer. The original scheduled date for an IPO was September 2021, the delay in the PGE IPO process has occurred due to a tug-of-war between PGE, PLN and Geo Dipa. If they had managed to launch their IPO in 2021, they would have gotten profits from the stock market. "Market sentiment was good and retail was busy at the time," said the minister.
Previously, the SOEs Ministry tried to combine the geothermal assets of PLN and Geo Dipa under the control of PGE. This plan was aborted. In addition to being opposed by the PLN workers union, PLN and PGE could not agree on the value of each company's assets. For PGE, PLN's geothermal assets should be valued at a low price because they are old. Meanwhile, PLN wants their transmission and distribution networks to be taken into account in the assessment process. Later, Geo Dipa also refused to have its geothermal assets merged into PGE assets.
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