Placement portion of BTN’s rights issue raises $154 million

Indonesia’s Bank Tabungan Negara sets the rights issue price at a 17.4% discount to Terp and prices the placement at a 9% discount for a total deal size of $195 million.
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An advert for one of BTN's Islamic products
<div style="text-align: left;"> An advert for one of BTN's Islamic products </div>

The placement of the Indonesian government’s 71.85% entitlement in Bank Tabungan Negara’s (BTN) pending rights issue has raised Rp1.478 trillion ($154 million) for the bank and the government after being priced at a premium to the rights offering.

The placement, which closed on Wednesday last week after eight days of bookbuilding, was priced at Rp1,360 per share, which sources say represents a 9% discount to the theoretical ex-rights price (Terp).

The bank has also set the price for the fully underwritten rights issue at Rp1,235 per share, which will see it raise $55 million from minority shareholders. Including the proceeds from the government’s entitlement, it will pocket a total of $195 million. (The additional proceeds resulting from the difference in price between the placement and the rights offering will go to the government.)

The rights issue price, which was set slightly above the mid-point of the earlier indicted price range of Rp1,000 to Rp1,400, represents a 17.4% discount to Terp and a 19.8% discount to Friday’s closing price of Rp1,540.

After an initial dip, BTN’s share price has gained 5.5% since the bank announced details of the rights issue on October 4, supported partly by higher-than-expected nine-month earnings. During the bookbuilding for the placement, the share price initially gained but then fell back again. Overall it was largely flat during the eight-day period. The stock is up 27% since the start of this year.

The government’s decision not to take up its entitlement is in line with a broader plan to reduce the state ownership of Indonesian companies. It did the same thing when Bank Negara Indonesia and Bank Mandiri completed their rights issues in November 2010 and February 2011.

The government has also been selling stakes in other state-owned enterprises, including Krakatau Steel and the country’s flagship airline Garuda Indonesia, through initial public offerings, although these part-privatisations haven’t always been that successful.

But the placement of its shares in BTN attracted quite a lot of interest both from international and domestic investors. According to a source, there was enough demand from international accounts alone to take up the entire placement and overall the deal was about four times covered. The international interest isn’t that surprising since more than 60% of the bank’s free-float is currently held by international investors.

The share sale also offered an opportunity for investors to increase their exposure to the Indonesian stock market. The Jakarta benchmark index was one of the top performers in Asia both in 2010 and 2011, but has lagged most other Southeast Asian markets during the first 10 months this year with a relatively modest gain of 13%.

Not that there has been a lack of opportunities for those wishing to buy Indonesian shares at a discount, though. According to Dealogic, Indonesia saw about $2.8 billion of equity capital markets activity during the first nine months this year, and most of that has come from placements. The amount raised put the country just behind Singapore and the Philippines with about $2.9 billion of deals each (Malaysia was well ahead with $8.6 billion). And last month, the controlling shareholder of Global Mediacom added slightly to the tally with a $200 million block trade in the Indonesian media group.

Irrespective of the demand, the government had already dictated that the BTN placement should be split 80-20 in favour of domestic investors, and the bookrunners had no choice but to follow that. As a result, a mere $31 million worth of shares were allocated to international investors.

The buyers included long-only funds, some short-term trading-focused investors (referred to as deal players) and private banks.

While BTN ranks as only the 10th-biggest Indonesian bank by assets, it is the leading mortgage lender with a 22.4% market share at the end of June. As of the end of September, house loans accounted for about 86% of its total loan portfolio and they have been underpinning an average 23.5% growth in its assets in each of the past three years. Net profit has increased at a yearly growth rate of close to 49% in the same period.

Notably, the bank has a 98% market share with regard to mortgages for subsidised government housing, but in the past few years it has been growing its non-subsidised and non-housing lending with the aim of diversifying into higher-margin segments.

However, the Indonesian mortgage market is a lucrative one. According to a BTN investor presentation, the total amount of outstanding mortgages in Indonesia has increased at an annual rate of 30% during the past eight years. And at 1.8%, the ratio of non-performing mortgage loans is well below the non-performing loan ratio of 5.2% in the banking sector overall.

Indonesia also has a very low mortgage penetration at only 2.3% of GDP. This is on par with the Philippines, but well below Thailand’s 10.7%, Malaysia’s 29.7% and Singapore’s 40.4%.

Like other banks in the region BTN is raising equity to shore up its capital base ahead of stricter capital requirements and to support its future credit growth. According to the investor presentation, the bank’s tier-1 capital ratio currently stands at 14.5% (above the Indonesian average of 13.5% for domestic and international banks), while its overall capital adequacy ratio is at 15.3% (below the 16.4% average).

Following the rights issue, BTN will be one of the best-capitalised banks in Indonesia, it said without elaborating.

Including the government’s entitlement, the rights issue comprises about 1.512 billion new shares, which accounts for 17.1% of the existing share capital, or 14.6% of the enlarged capital. The bank will issue 94,943 new shares for every 555,000 existing shares, which means shareholders will have the right to subscribe to about 17 new shares for every 100 shares they currently own.

The government’s ownership in BTN, which it holds through the ministry of state-owned enterprises, will be diluted to 61.35% after the rights issue. The government’s stake will fall to 60% once 234 million employee share options are exercised in 2017, which will trigger a reduction of BTN’s tax rate to 20% from 25%.

The government will be subject to a six-month lockup with regard to its remaining stake after the rights issue, while BTN has agreed to a 12-month lockup.

An extraordinary general meeting will be held on Wednesday, at which shareholders will vote on whether to proceed with the rights issue. Assuming it is approved, the record date for the offering will be November 21.

Shareholders who don’t want to take part will be able to sell their rights in the open market between November 23 and November 30. The offering will be open for subscription during that same time.

Bahana Securities, Credit Suisse, Danareksa Sekuritas and Mandiri Sekuritas were joint global coordinators for the placement, with Goldman Sachs joining them as a joint bookrunner. The same five banks are also underwriting the non-government portion of the rights issue.

¬ Haymarket Media Limited. All rights reserved.

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