Indonesia’s Lion Air is in the final stage of preparing to launch an initial public offering (IPO) that has been delayed multiple times.
The airline plans to list before the end of 2019 on the Indonesia Stock Exchange (IDX) in an exercise that aims to raise up to $1 billion, marking the third-largest IPO ever on the Indonesian bourse, although the top end of that amount might be an over-ambitious goal. While the bulk of demand for any IPO equity raise certainly will come from investors outside Indonesia, Indonesian law currently caps foreign ownership of locally flagged airlines at 49%.
Foreign capital inflows into Indonesia reached about $13.9 billion for the year to Oct.10, with about $10.1 billion invested in government bonds and the balance invested in the stock market, according to Bank Indonesia. The Indonesian central bank noted that while yields on government bonds are attractive to investors, flows to portfolio investment are still volatile due to fluctuations in the global economy.
Lion Air is part of the Lion Air Group with Wings Air, Batik Air, Lion Bizjet, Malaysia-based Malindo Air and Thai Lion Air. Lion Air also offers an integrated service called Lion Parcel that carries a large volume of shipments in the belly-hold of aircraft, transferring parcels to dedicated land transport vehicles for door-to-door delivery. E-commerce shipments represent about 50% of Lion Parcel’s total delivery volume.
Cargo volumes emanating from Indonesia are robust. According to the Indonesian Logistics Association, the logistics sector is estimated to experience an increase of 12% in 2019, well below the annual growth of the e-commerce sector, which according to Bank Indonesia, could jump by 100% to 150% this year.
Lion Air will have competition in raising capital on the Jakarta market. In spite of unfavorable global economic conditions, more than 20 companies have formally registered with the IDX to conduct IPOs before the end of the year.
Potential investors also will be aware of two recent serious problems.
In September, subsidiaries Malindo Air and Thai Lion Air were forced to acknowledge a data leak in which passenger data may have been stolen from remote servers. In addition, Lion Air is still reeling from the October 2018 loss of a B737MAX that crashed into the Java Sea shortly after takeoff, killing all 189 passengers and crew.
While Lion Air has not named underwriters, sources indicate that the share sale will be led by Ciptadana Sekuritas, Danareksa Sekuritas, Mandiri Sekuritas and MNC Sekuritas. Founded in 1999, Lion Air is Indonesia’s largest privately held carrier and the second largest in Southeast Asia behind Malaysia-based low-cost carrier AirAsia.
Post-IPO, Lion Air will become the third airline listed on the IDX, following previous listings by Garuda Indonesia Group, parent of flag carrier Garuda, Garuda Indonesia Cargo and Citilink, and low-cost carrier AirAsia Indonesia.
Lion Air would use IPO proceeds to boost liquidity and fund the purchase of a large number of Airbus and Boeing aircraft.
Lion Air has been considering an IPO since 2005, although multiple attempts were put on hold due to a volatile rupiah and weak economy. The carrier contemplated the sale of a 30% stake on the IDX in the first quarter of 2016, with plans to raise about $800 million. The carrier pulled the offering from the market as Indonesia grew at its weakest pace since the global financial crisis in 2015, hit by faltering consumption, rising unemployment and weak commodity prices.
In 2014, Lion Air floated plans for an IPO to raise up to $1 billion, which would be partly used for airport expansion.