DEPOK (eNBe Indonesia) - Barito Renewables Energy (BREN), a holding company for geothermal operations and part of the Barito Pacific Group owned by Prajogo Pangestu, has kicked off its initial public offering (IPO) for 4.5 billion shares, representing 3.35% of total issued and paid-up capital, priced at Rp670-780 per share, to raise total proceeds of maximum Rp3.51 trillion.
That means BREN will start the trading with market capitalization slightly above Rp100 trillion or 10 x enlarged equity after the IPO.
For a comparison, Pertamina Geothermal (PGEO) is now traded 2x equity only. PGEO shares jumped 15% to Rp1,415 last Friday (Sep 15) to make a market capitalization of Rp58.6 trillion. PGEO was last traded with PE multiple 21.
Some consider BREN is highly overvalued because net profit margin in 2022 (30.4%) was actually smaller than Pertamina Geothermal (33%).
Others, on the other hand, believe BREN’s IPO valuation fairly represents the company’s higher return on equity (ROE). Well, PGEO’s ROE in 2022 was 10%, nothing compared to BREN (40%).
“Still, that can’t justify equity valuation five times Pertamina Geothermal,” said one market participant.
“I know global investors have pretty high appetite on renewable and energy transition, but BREN is too aggressive of a valuation for me,” another retail investor commented.
The book building pre offering starts today and will last in September 25, 2023. The offering is set at October 2-4, 2023 and listing on the Indonesia Stock Exchange (IDX) is set for October 6, 2023. PT BNI Sekuritas acts as the underwriter for this IPO.
BREN will use IPO proceeds for Star Energy Geothermal which will be used to pay obligations.
That said Star will pay part of the B facility debt to Bangkok Bank Public Company Limited in the amount of US$158.6 million.
Also, to fulfill payment obligations to Star Energy Oil and Gas Pte. Ltd. (“SEOG”) and the Company in the amount of US$60 million.
Current Barito Pacific holds 66.67% BREN shares, while Green Energy Era holds 24.33 percent, Jupiter Tiger Holding 4.5%, and Prime Hill Fund holds 4.5%.
After the IPO, BRPT will control 64.43%, Green Energy 23.52%, Jupiter Tiger and Prime Hill Fund 4.35% each and the public 3.35%.
BREN now focuses on a long-term strategy to provide cleaner energy and lower emissions and supports Indonesia’s targets for the transition to Net Zero Emissions (NZE). It started operations through one of its subsidiaries, Star Energy Geothermal Group, a leading geothermal electricity producer.
Currently the Company Group operates three geothermal assets located in West Java, with a total installed capacity of 886MW, representing approximately 38% market share in Indonesia.
Earlier diversified group Barito Pacific (BRPT) said it will add assets or equity in geothermal business segment through Star Energy Geothermal Pte Ltd (SEGPL) and Star Phoenix Geothermal (SPG), to focus on the new and renewable energy sector and has the potential to become the leading energy company in Indonesia.
With introduction of the 2014 National Energy Policy with a target of 23% of electricity generation from renewable energy by 2025, geothermal has become the main pillar of government energy policy and has been around since has experienced accelerated capacity growth.
Geothermal power generation capacity in Indonesia is expected to grow rapidly from ~2.6 GW in in 2023 to ~6.7 GW in 2030, with a CAGR of ~14.6% which is comparable relative to the global CAGR average of ~5.8% over the same time frame.
In 2030, Indonesia it is expected to have the largest geothermal capacity in the world accounting for 35% of estimated net capacity global geothermal heat.
This growth is supported by Indonesia’s significant geothermal resource potential, rapid growth in market demand, and policy support as a major part of future plans government to increase renewable energy in the energy mix.
Per March 2023, BREN’s assets reached US$3.47 billion while liability amounted to US$2.9 billion. Then the equity was US$474.3 million.
The Company booked net profit of US$39.6 million in the first quarter (Q1) of 2023, on revenues of US$147.1 million. In 2022, BREN booked net profit of US$172.5 million, grew 8.2% year on year (y/y) on revenues of US$569.78 million, grew 5.9% y/y.
While concern on risk for BREN are related to the implementation of the terms of the agreement by PLN and Pertamina Geothermal Energy (PGEO).
Noting that BREN’s business activities are completely dependent on two main types of agreements for operations Wayang Windu, Darajat and Salak geothermal power generation.
Government obligations based on the Wayang Windu ESC Support Letter and the Wayang JOC Support Letter Windu is only limited to Wayang Windu and possible geothermal power generation operations not legally binding.
Also, the financial performance of the Group of Companies depends on the successful operation of the Group of Companies’ facilities, which depending on various operational risks.
That said, BREN Group relies on PT Indonesia Power (IP) which is owned by PLN to maintain operating units geothermal power generation in Darajat (Unit 1), Salak (Units 1,2,3).
Pretty heavy relationship with state agencies, government and SOEs, as usual, needs careful assessment of BREN’s GCG practices.***