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Bank Mandiri share sale goes
ahead
By Bill Guerin
JAKARTA
- Seven hundred million shares of Bank Mandiri,
Indonesia's biggest bank, are on offer to Indonesian
retail investors through Friday this week in the
country's largest initial public offering (IPO) since
the sale of PT Bank Negara Indonesia in 1996.
Bank Mandiri, which began operations in August
1999, was formed from the wreckage of four state banks
that had been devastated by the East Asian financial
crisis of 1997 and 1998. It holds assets of Rp260
trillion, or US$31.7 billion.
Fund managers from
the United States, Europe and Asia previously grabbed
3.3 billion Mandiri shares for Rp675 each after
underwriters doubled the number being offered to 4
billion when bids outnumbered the shares available by
almost 10:1. ABN Amro Rothschild, Credit Suisse First
Boston Inc and Indonesia's PT Danareksa arranged the
sale. The stock is due to begin trading in Jakarta on
July 14.
Share traders say the much-hyped IPO is
expected to help increase investor confidence in the
country's banking sector. Shares in Indonesian banks
have nearly doubled so far this year, and David Nellor,
the IMF chief representative in Jakarta, sees the sale
as heralding Indonesia's "renaissance in the global
financial community". The unexpected level of demand is
also being seen as a vote of confidence, though many
analysts say the banking sector is still far from
healthy.
Investors tracking the country's
macroeconomic growth prospects will soon have more to
whet their appetites. IBRA plans to sell about 30
percent of Bank Rakyat Indonesia, the country's
fourth-largest lender, as well as stakes in Bank Negara
Indonesia, Bank Lippo, Bank Internasional Indonesia and
Bank Permata.
IBRA this year sold controlling
stakes in Bank Danamon to Asian Finance Indonesia Pte
Ltd, a consortium of Singapore's Temasek Holdings and
Deutsche Bank of Germany (see Singapore gains ground in Indonesian
banking, Jun 17), and on Thursday the agency was to
kick off an imminent sale of another 20 percent stake of
the bank. Twenty percent of Bank Niaga will also be
offered. Last year Malaysia's Commerce Asset Holdings
Bhd bought a majority shareholding in Bank Niaga. The
government still retains more than a 40 percent holding
in both banks.
This week's retail offering of
Mandiri shares, priced at Rp675 (82 cents) a share, is
expected to raise some Rp2.7 trillion ($328.3 million)
for Indonesia's budget. The flotation raises total sales
to about 20 percent of the bank's equity, compared with
the original plan of a maximum 15 percent.
About
Rp2.23 trillion ($271 million) was raised last month in
an IPO that was 6.5 times oversubscribed. Bank Mandiri
president E C W Neloe said 24 billion shares had been
requested by foreign investors and 3 billion by locals.
The bank has come a long way since it was formed
in July 1999 via the forced merger of four big, corrupt,
failed state-owned financial institutions - Bank Dagang
Negara Indonesia (BDNI), Bank Bumi Daya (BBD), Bank
Pembangunan Indonesia and Bank Ekspor Impor Indonesia.
The combined entity employs more than 17,000
people, has 687 branches and four overseas subsidiaries
and is Indonesia's largest bank. Some 1,550 automated
teller machines (ATMs) beef up its nationwide network in
consumer banking.
Investor interest in the bank
is put down to its strong financial performance. For the
first quarter this year, the bank reported profits of
Rp1.55 trillion, up 30 percent from last year.
Bank Mandiri is also the country's most heavily
recapitalized bank, holding 27 percent of the $66
billion of government bank-recapitalization bonds that
the government injected to bank balance sheets to
replace the problem loans taken over by the Indonesian
Bank Restructuring Agency (IBRA) when 67 banks were shut
or taken over by the government. Indonesia had in effect
been forced to nationalize a banking system on the verge
of collapse.
The government has since spent well
over Rp600 trillion salvaging these banks and every year
has to pay some Rp70 trillion in recapitalization bond
interest.
Some skeptics point out that Bank
Mandiri is more like a bond fund than a bank, given that
its asset base is still dominated by government
recapitalization bonds. Mandiri's assets, currently
worth about Rp260 trillion, equate to a quarter of
Indonesia's total banking assets, but some 60 percent of
these assets are in recapitalization bonds and other
securities. The loan book accounts for only 26 percent,
or Rp68.8 trillion, of the total.
Nonperforming
loans (NPLs) have been culled to some 7 percent of the
total portfolio, from a peak of more than 70 percent in
the early days following nationalization. Nonetheless,
the fact that the government will still hold 80 percent
of shares after the sale suggests that state-owned banks
such as Mandiri could still be pressured into what has
been called national service, making unprofitable loans
to politically connected business owners.
Bank
Mandiri, though, has been more successful than other
banks in reducing its dependence on government bonds and
expanding its credit. Lending is up Rp20 trillion over
last year and its holdings of government bonds are down
by Rp2 trillion.
The government promised to
privatize Bank Mandiri by the end of the first quarter
of 2002 in the letter of intent (LoI) it signed with the
International Monetary Fund (IMF) in August the year
before.
It finally gave the go-ahead for the IPO
plan last month, after two years of uncertainty. A road
show in Asia in the middle of June was backed up by an
IPO promotion campaign, the biggest ever in Indonesia,
which was costly, wide-ranging and innovative.
This week's domestic equity buyers are being
wooed by offers of top-of-the-range automobiles, though
they need not be too concerned about losing in the draw
for five such prizes - the bank has promised that 50
percent of this year's net profit will be divvied up for
dividend payments to shareholders.
The Capital
Market Supervisory Agency (Bapepam) had to summon the
underwriters and warn them to balance the campaign
information between the benefits and the risks. Adi
Rahman Adiwoso, chairman of the Indonesian Institute for
Corporate Governance (IICG), also had worries about the
hype.
"I see that Bank Mandiri's campaign puts
more emphasis on the benefits," he said last month. "It
is important to equally expose the benefits and the
risks in order to prevent potential investors from
having too-high expectations."
However, the
promotional blitz may have had little effect on
investors who were more interested in the bank's
fundamentals than its ability to market. Value for money
was assured.
The current pricing represents 0.9
to 1.1 times the bank's book value, lower than that of
Bank Central Asia (BCA), Bank Niaga or Bank Danamon,
whose shares were sold at more than 1.2 times their book
value.
Investors believe they are assured of
yield and growth within the relative safety of a market
being driven forward - bank stocks have nearly doubled
in value so far this year, with the benchmark Jakarta
Composite Index up 19 percent in local terms and 29
percent in US dollar terms this year. This ranks it as
Asia's best-performing stock index after Thailand's,
though the bourse only trades up to $50 million per day.
With a forecast dividend yield of 14.2 percent,
Bank Mandiri would be Asia's highest-yielding bank.
Against this backdrop, serious constraints
remain on overall economic recovery.
The
negative effects of essentially political and social
issues, such as the lack of secure rights to property
and personal safety, and the absence of the rule of law,
continue to delay the return of investor confidence and
negatively impact would-be investors and Indonesians
themselves, creating an uncertainty that hampers
economic progress.
Fundamental reforms in the
justice sector, including legal and judicial reforms,
reforms in the police and prison systems and the
attorney general's office are not expected this side of
the 2004 elections.
Corruption is still rife in
the country and the growth rate of 4 percent, though
healthier than many advanced economies, is still too low
to reverse massive increases in unemployment. Growth is
now threatened by a decline in consumer spending.
Indonesia is set to exit from the IMF program at
the end of this year and the challenges posed by the
immediate post-IMF period added to the political
uncertainty ahead of the elections will cast a shadow
over next year's economic progress.
(Copyright
2003 Asia Times Online Co, Ltd. All rights reserved.
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