Government divests Mandiri stake

Indonesian government sells a 10% stake in the country''s largest financial institution, Bank Mandiri.

A two billion share offering in PT Bank Mandiri was completed yesterday (Thursday) raising $339 million at a relatively tight 3.3% discount to spot. The deal was marketed on a range of Rp1,400 to Rp1,475, representing a 6.1% to 1.6% discount to the stock's Rp1,500 close on Wednesday.

Despite difficult global equity markets, lead managers Danareksa and UBS were able to build a healthy enough order book to sustain pricing at Rp1,450, which represents an even slimmer 1.2% discount on a VWAP basis. This is just outside the 0% to 3% discount at which the banks are said to have won the deal, but in line with recent secondary offerings by the government.

Back in October 2003, the government sold a $98 million stake in Indocement at a 4.16% discount to spot and in July 2002, a $125 million stake in PT Telkom at a 3% discount.

In the run up to Mandiri's deal, the stock was fairly resilient to news of the government stake sale and has bounced back from a year-to-date low of Rp1,400 at the end of February. The deal equates to 47 days trading volume and will expand the freefloat from 20% to 30%.

Books are said to have closed 1.9 times covered with a split that saw 70% of paper placed internationally and 30% domestically. International demand had a further split of 40% Asia, 40% Europe and 20% US.

Because global equity markets were falling throughout the bookbuild, specialists say momentum driven investors were largely absent. "A lot of hot money just didn't arrive," one comments. "The people interested in this deal were all the usual Indonesian watchers and traditional long only accounts. There was very little hedge fund demand."

About 60% of investors were said to be new to the stock, but the big orders were mainly placed by existing holders.

During Thursday's trading, the Indonesian stock market fell 2.5% and European markets reacted badly to news of bombings in Madrid, falling 2% to 3% by the time the deal priced early in Asia's evening.

However, the leads believe the quality of the order book and positive momentum generated by the bank's better than expected results, will hold the stock up when it resumes trading today. Suspending the stock before the market had time to react to the bank's 2003 results may prove to have been the inspired choice, since pent-up demand may buffer the downward pressure of the overall market.

The stock has also well rewarded investors that have stayed in since the IPO in June 2003 at Rp675 per share. Since then the stock has run up about 125% and is yielding a high 8.5%.

Many analysts believe the stock has some way yet to run. At current levels it is trading on a 2004 forecast price to book valuation of 1.2 times. This marks a 30% discount to sector leader Bank Central Asia, which is trading at 1.7 times.

The bank's results announced Wednesday showed a 28% increase in net profit to Rp4.59 trillion ($534 million). The figure beat analysts' consensus estimates by about 8%.

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