UBS priced a $150 million debut subordinated debt issue for Bank Rakyat Indonesia (BRI) yesterday (Thursday).
The 10 non-call five lower tier 2 deal was priced at 99.471% on a coupon of 7.75% to yield 7.875%. This equates to a spread of 482bp over Treasuries, or 439bp over Libor. Fees total 45bp.
Pricing at these levels is not only considerably tighter than the pre-marketed range, but significantly through the trading levels of government-owned comparables such as Bank Mandiri and Bank Negara Indonesia (BNI). Most people, including the lead manager, had assumed BRI would have to price at a small pick-up to its larger competitors and indeed the deal was pre-marketed around the 8.25% level.
At Asia's close yesterday, Mandiri's 10.63% August 2012 issue callable in 2007 was bid around the 108.75% level to yield 7.94%. Without accounting for the maturity differential, BRI has priced 15bp through Mandiri on a yield basis and after taking into account the 42bp on the swap curve, it has come nearly 60bp through on a Libor basis.
The indicative range was tightened the morning before pricing and books are still said to have closed five times covered. A total of 71 investors participated, with a geographical breakdown showing that 45% went to Singapore, 29% to Indonesia, 14% Hong Kong, 11% Europe and 1% Australia.
By investor type, private banks took 36%, asset managers 35%, banks 24%, insurance 4% and corporates 1%.
One of BRI's main aims with the deal was to internationalise its investor base ahead of a listing on the Jakarta Stock Exchange late next month. Success is clearly reflected in the bond's distribution pattern, which in turn provides a fantastic platform for the IPO.
And the reasons for its success are also evident. BRI benefits from its government ownership and its stand-alone fundamentals. The group operates a very profitable niche within the Indonesian banking sector and has often been cited by analysts as one of the world's most successful microfinance institutions.
As an extremely infrequent borrower, it also offers rarity value to both domestic and international investors.
Virtually all of its ratios are either the best or among the best in the Indonesian banking sector. Its NPL's, for example, stand at 6.6%, with high loss reserves of 145%. In a ratings summary, investors say UBS concluded that the bank would be rated at the BB level on a stand-alone basis.
