BNI clears 73% of rights issue through placement

Bank Negara Indonesia (BNI) has raised Rp8.4 trillion ($930 million) from the sale of the government’s portion of its pending rights issue through a placement. The placement was priced at Rp3,400 per share, which represents a 9.7% premium to the rights issue price of Rp3,100. This means the proceeds from the rights issue will be slightly greater than what it would have been had the government chosen to exercise its rights along with the minority shareholders.

The rights issue price was finalised after the close of trading on Monday and represents a 19.5% discount to the latest close and a 16.5% discount to the theoretical ex-rights price of Rp3,714, which is also based on Monday’s close. When the prospectus was first revealed the rights issue price was indicated at Rp2,300 to Rp3,700.

At the final price and including the proceeds from the placement, the fully-underwritten rights issue will raise a total of Rp11.2 trillion ($1.2 billion) in what will be the largest Indonesian share sale since coal miner Adaro raised $1.3 billion in an IPO in June 2008. However, about 85% of the Adaro deal went to a group of international pre-IPO investors as part of a group restructuring. Of the remaining portion, the majority was bought by domestic accounts.

The Indonesian government, through the ministry of state-owned enterprises, owns 73.3% of BNI but will be diluted to 60% following the rights issue. The decision not to take up its entitlement is in line with a broader plan to reduce the state ownership of Indonesian companies. In October, the government floated Krakatau Steel on the stockmarket and the country’s flagship airline, Garuda Indonesia, is also on track to be part-privatised early next year.

To maximise the profits for BNI, the government sold its rights to Bahana Securities, which will exercise the rights in return for 2.47 billion shares – the same shares that have now been pre-sold to investors. Aside from Bahana, Credit Suisse, Goldman Sachs, Macquarie, Morgan Stanley and UBS acted as joint bookrunners for the placement.

Despite the premium pricing versus the rights issue, the placement attracted strong interest as investors welcomed the opportunity to gain exposure to the Indonesian stockmarket, which remains the best performing market in Asia this year with a 45% gain.

“These liquidity events are important and there was good participation from both international and domestic investors,” said one source.

The deal was multiple times covered and, while there was no information last night about how the allocation would be split, the source said it would be a surprise if domestic investors wouldn’t get at least 50% as is the common practice on Indonesian share sales.

The international investors included mutual funds and other types of long-only funds, as well as hedge funds that were attracted by the discount to the market price. For sure, the discount is significantly narrower than on the rights issues for three Chinese state-owned banks that are also in the market at present and are being offered at discounts to Terp ranging from 39% for Bank of China to 41% for China Construction Bank and 46.2% for Industrial and Commercial Bank of China. However, the Indonesian transaction is also a lot smaller with the Chinese issuers looking to raise $9 billion, $9.2 billion and $6.8 billion respectively.

Excluding the government portion, 26.7% of BNI’s rights issue remains to be sold to minority shareholders.

The bank is offering one new share for approximately 4.5 existing ones, which means BNI is selling about 3.37 billion new shares in total, including the 2.47 billion that have already been offloaded through the placement. In all, the fund-raising accounts for 22.1% of the existing share capital.

The share price fell 5.2% to Rp3,650 yesterday after the rights price was announced, but the strong response to the placement suggests that there should be enough support for the offering even at a slightly narrower discount. Indeed, the share price held up well during last week’s roadshow for the placement and in fact, closed the week flat versus the previous Friday. Also, yesterday was a tough day in most markets around in region after North Korea’s military attack on a South Korean island.

Either way though, the bank will get its money since the rights issue is fully underwritten by Bahana and the five international bookrunners. The capital will help strengthen BNI’s capital base and improve its banking infrastructure. It may also be used for general corporate purposes. In an earlier statement, the bank said it estimates its capital adequacy ratio will increase to 19%-20% from 12.5% at present as a result of the rights issue.

The rights offer will be open from December 10 to 16 and investors who don’t want to make use of their rights can sell them on the Indonesian stockmarket during the same period. BNI shareholders will vote on whether to proceed with the offering at an extraordinary general meeting on Thursday and assuming the deal is approved, the record date is December 8.