All eyes on Pertamina

Bankers await the mandate for the Indonesian state oil and gas company''s international bond deal.

Bankers concluded two days of presentations yesterday to Indonesia's state oil and gas company, Pertamina, trying to win the coveted mandate to lead the company's debut international bond deal.

It is understood that three banks gave presentations on Tuesday and three presented yesterday. The six banks that were invited to pitch are believed to be CSFB, UBS, Morgan Stanley, JPMorgan, Citigroup and Deutsche Bank. According to bankers involved in the bake off, a decision on the mandate could be announced as soon as the end of this week, although next week is thought to be more likely.

It is not clear exactly what the eventual deal will be at this time but an international deal of between $500 million and $1 billion looks likely. Sources suggest that some of that money could come from the nascent onshore dollar bond market while most will come from the international markets. It is also unclear if the mandate will be solely for the international bond deal or if it will be a deeper financial advisory role which could lead to multiple financings.

Pertamina is a key relationship in Indonesia. The company is undergoing a corporatization exercise that will lead to a privatisation in 2004 or 2005. That process could see the company emerge into one with a market cap of around $50 billion, according to the Pertamina CFO, Ainun Naim.

The key risk involved with the company however is politics. The Indonesian government is still debating what assets will be passed into the company and which the government will keep. At the moment the company is little more than an offshoot of the government. And sources suggest that some in the government are loathe to give Pertamina its oil and gas reserves.

With the reserves, Pertamina could become a fully integrated oil and gas major, in the mould of Petronas in Malaysia. The company is understood to be pressing for the transfer of LNG reserves in particular as well as back in rights to Indonesia's production sharing contracts with foreign exploration and production companies.

Without these assets, Pertamina becomes little more than a downstream refinery, shipping and sales operation, a much smaller entity than it wishes to be. Most commentators agree that the decision on what to give Pertamina will be a key determinant of how seriously the Indonesian government is committed to privatisation.

The transformation on Pertamina into a new super major has clearly got the regional financial community excited, although as one Indonesian banker recently noted "we have been looking at this company since the beginning of all our careers".

In recent months it has started to engage international financiers more than ever. Early this year it was one of the sponsors of the BlueSky refinery project that attracted much needed international project finance, albeit on a limited recourse basis. Then in the second quarter its shipping subsidiary signed an eight year shipping finance deal worth $160 million with Citigroup and two export credit agencies from China and Korea. With international bond deals and the potential of an IPO in the offing, no wonder the financial community is paying it so much attention.

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