About 90 people are said to have attended the opening presentation in Jakarta yesterday (Wednesday) for the CCC+/B3-rated bank's $100 million five-year FRN with three-year call and puts. There will now be a break for Ramadan before presentations commence again in Singapore on December 3 and Hong Kong on December 4, with pricing thereafter.
Investors report that the HSBC-led deal is likely to the first but not the last offering from Indonesia's largest bank as it seeks to re-build a yield curve for the Republic and raise funds to pay-down debt coming due over the next couple of years. However, a second deal is not expected until Mandiri completes its IPO, scheduled for the first half of next year, when the government is seeking to divest a roughly 30% stake via Credit Suisse First Boston.
A number of the FRN's launched by Mandiri's four constituent banks are coming due during 2002 and in the following few years. A total of $580 million is due next year, rising to $800 million over the course of 2003 and 2004, then dropping to $600 million over the 2005 to 2009 period.
The deal is likely to be pitched as a leveraged sovereign play and investors say that three main issues were raised during the presentation. These concern the sovereign credit view, bank restructuring and Mandiri's individual credit fundamentals.
Where the last issue is concerned, the bank highlighted progress made by the new management in shedding NPL's and re-configuring a balance sheet dominated by government recapitalization bonds. From an NPL level of 71.25% in December 1999, for example, the bank was able to bring the level down to 20.1% as of December 2000 and 14.4% by June this year. This compares to an 18.8% level for Bank Negara Indonesia (BNI) and a 5.9% level for Bank Central Asia (BCA).
By contrast Mandiri has an extremely high capital adequacy ratio of 29.1% versus 17.3% for BNI and has moved to aggressively provision for NPL's, with a current level of 160.4%.
In terms of re-configuring its balance sheet, interest bearing government re-capitalization bonds still account for nearly 70% and stand at Rp170 trillion ($15.94 billion) against Rp49 trillion ($4.95 billion) in loans. But at the same time, the bank said that it has made great strides improving interest income, with net profit rising strongly to Rp1.5 trillion ($176 million) over the first half, against net profit of Rp2 trillion for the whole of 2000 and a net loss of Rp68 billion the year before that.
Traders comment that Indonesian spreads have remained relatively stable in recent weeks, largely the result of an almost complete lack of liquidity and strong onshore bid. The fact that the deal will offer the only on-the-run coupon from Indonesia is likely to be one of its strongest selling points. So too, demand from the Indonesian financial sector will provide an obvious natural support for the deal, but with European and Singaporean banks also re-opening lines to the country, the reg S deal should have true international distribution.
Country specialists believe that the deal is poised to benefit from one of the first genuine waves of interest in the Republic since the financial crisis. Full government ownership and an explicit debt guarantee (renewable on a six monthly basis), also make MandiriÆs transaction a first test of investors' faith in the Megawati government.
The sovereign's $400 million 7.75% August 2006 bond is currently bid at 555bp over Treasuries, while BNI's 7.625% February 2007 bond is trading on a bid/offer spread of 781bp/725bp or a cash price of 86%.
Bank Mandiri was formed in July 1999 through the merger of four state-owned banks - Bank Dagang Negara Indonesia (BDNI), Bank Bumi Daya (BBD), Bank Pembangunan Indonesia and Bank Ekspor Impor Indonesia. It is currently in negotiations with the government to take over Bank Internasional Indonesia (BII) and investors will pay careful attention to the terms under which the sale is concluded.
Mandiri is keen to purchase the Sinar Mas bank because it will give it a much stronger retail footprint and opportunity to improve interest margins. The bank has said that doing so remains one of its key strategic aims. BCA, for example, has a huge retail network, helping it to record a net interest margin of 5.1%. Mandiri, by contrast, stands at 2.7%, slightly above its counterpart BNI on 2.4%.
However, bank officials told investors that they are only interested in buying BII on commercial terms and want IBRA to take over the latter's high proportion of NPL's.
In re-affirming MandiriÆs B3 rating yesterday, Moody's assigned an E financial strength rating with, "a positive outlook reflecting the potential benefits offered by the bankÆs restructuring efforts."