Blue Bird taxis flying high with $2bn IPO valuation

January 15, 2014 1:49 am

Blue Bird taxis flying high with $2bn IPO valuation

By Ben Bland in Jakarta

In the sprawling city of 12m that is Jakarta – heavy on traffic, low on decent public transport – everyone from local office workers to international investors relies on Blue Bird taxis to get around.Clean, reliable and readily available except during heavy rain, Blue Bird’s taxis have become among the best-regarded, not only in Indonesia but in the whole of southeast Asia, where querulous drivers, beat-up cars and dodgy meters are widespread.

Now, 41 years after it was founded by a widowed law lecturer with just 25 vehicles, the family-owned company is looking to better tap demand from the fast-growing Indonesian middle class, with a Jakarta stock exchange listing that could value Blue Bird at up to $2bn.

“An initial public offering is one of the ways we’re still looking into for supporting our future growth,” says Noni Purnomo, vice-president of business development at Blue Bird’s taxi division and the granddaughter of the company’s founder.

“Of course if we are a public company, it’s easier to raise money. But what is more important for us is the sustainability of the company. We want to see this company run professionally and, by being a public company, we believe we will attract more talented professionals from outside.”

Blue Bird, which is being advised by Credit Suisse, UBS, and local brokerage Danareksa, was keen to complete the IPO in December, but failed to get approval from the Indonesian regulator because of an outstanding lawsuit from a disgruntled family member.

Ms Purnomo refuses to comment on the details of the legal issue but says “we don’t think there’s a major hurdle in the process”. Bankers hope the listing can be restarted in the first quarter of this year.

“We’ve had a lot of interest from our international clients given the quality of the company and the lack of good options for those who want to invest in the Indonesian consumer market story,” says one banker working on the deal. “But the big question, as always, is valuation.”

Indonesia’s middle class will nearly double from 74m to 140m by 2020, projects Boston Consulting Group, a trend that is attracting investors from US automakerGeneral Motors  to Japan’s Sumitomo Life insurance.

Blue Bird was looking to sell up to 20 per cent of its taxi, limousine and bus business for up to $400m, which would have given the company a market capitalisation of $2bn, according to bankers.

With concern rising about the sustainability of Indonesia’s decade-long economic boom, the IPO market has fizzled since the benchmark Jakarta Composite index hit a high last May, having more than tripled in value over the previous five years.

But Ms Purnomo says that, with solid backing from its lenders, Blue Bird will proceed with its expansion plans regardless of a listing.

Blue Bird’s taxi fleet of 27,000 has been growing by an annual average of 18 per cent over the past three years and the company has secured another 11,000 taxi licences out to mid-2015, in Jakarta and several fast-expanding secondary cities.

Licences, distributed by local government, are strictly controlled and issuance is dependant upon several criteria, including cost and quality of service.

For a company that has built its brand on customer service, finding good drivers is proving increasingly difficult, in spite of perks including free healthcare and Blue Bird’s unusual model of commission-sharing with a minimum income guarantee.

Ms Purnomo says that only 40 per cent of candidates pass Blue Bird’s driver tests and the company must look beyond the Indonesian capital, bringing in outsiders who do not know how to negotiate Jakarta’s bewildering maze of tiny alleys, one-way streets and dual carriageways.

“Monitoring quality is the biggest challenge,” she says as she shows off the company’s central control system, which maps the location and status of every taxi in Jakarta. “We have to invest heavily in people and systems, not like with the rental model,” the preferred option for many taxi companies whereby they simply rent out meters and leave drivers to operate however they choose.

From issuing drivers with GPS systems to its smartphone app for bookings, Blue Bird is turning to technology for an edge over competitors.

But ultimately, the biggest challenge is to maintain a high level of service.

Ms Purnomo cites the issue of integrity, with her drivers returning about 2,000 items, mostly mobile phones, laptops and wallets, every month via a lost-and-found list in the back of Blue Bird’s in-car magazine.

With more developed regional capitals such as Kuala Lumpur in Malaysia and Bangkok in Thailand still lacking good taxi services, there has been talk of Blue Bird expanding overseas.

However, Ms Purnomo says the company will only open up internationally if it can get a full licence and have total control over the business, a tough ask given that many countries still protect the industry against new competition.