Bank Mandiri embarks on its global roadshow today as it seeks to raise up to $162 million from its IPO. The sale is the most keenly awaited equity transaction out of Indonesia and the first such government linked IPO for three years.
The company and its global co-ordinators, ABN Amro Rothschild, CSFB and Danareksa - will be spending three days in Singapore before heading off to Europe for four days. The team will then move to the US before returning to Asia for pricing on June 23rd.
Last week the management met domestic investors in Jakarta on Wednesday and Surabaya on Thursday. At the Jakarta presentation there were hundreds of investors crammed into the ballroom of the Shangri-La hotel, all of whom were presented with badges saying "Go Public Bank Mandiri Go".
As those badges suggest, this deal is more than your average equity deal. The IPO of Bank Mandiri is a symbolic act testifying to the re-emergence of Indonesia back into the global investment fold. It has a deal of great national importance and very little is being left to chance.
The bank was formed after the crisis by merging four bankrupt state owned banks into one and renaming it Mandiri (which in bahasa means 'self sufficient'). It now dominates the fractured landscape of the Indonesian banking sector, by some measures accounting for 24% of the entire banking system. Given that there are still 120 banks in Indonesia, Mandiri's dominance is total.
The deal is being structured in a similar way to the UK privatizations of the 1980s, with many devices to encourage local retail participation. There is a 3% discount for retail investors. There is even a lottery for those retail investors who buy $200,000 worth of shares and keep them for six months. Those that do, have the chance to win a Mercedes E-class car.
The price range announced last week equates to 0.9-1.1 times book value, a 20% range. Between 10% and 13.5% of the company is being sold with the proceeds therefore coming out at $132 million to $162 million. There is a 10% employee share ownership programme and a 15% greenshoe
There is also a 35% redshoe option - a device that seeks to maximize the participation of retail investors but not cause there to be an overhang on the stock if the deal fails to sell. If there is sufficient demand from local retail investors this 35% option will be sold. If not, it will not. "Mandiri is going all out to make a huge success of this deal, " says one banker who is close to the sale.
Given Mandiri's recent performance, the bank does have a good story to tell. Its last set of results for Q1 2003 showed the bank earning net profits of Rp1.55 trillion ($174 million), up 32.6% from the same period last year. However, ROE, while high at 36.7% was down from the same period last year when it was 38.1%.
A look under the bonnet at Mandiri's balance sheet reveals that of its total assets of Rp260 trillion, 59% or Rp152.7 trillion is made up of government recapitalization bonds and other securities. The loan book only accounts for Rp68.8 trillion or 26% of the total.
Nevertheless, Mandiri has been working hard to reduce the dependence on government bonds and increase its lending. The loan book has increased by Rp20 trillion over the last year while its holdings of government bonds have fallen by Rp2 trillion.
Most investors will probably look at Mandiri as a leveraged play on the Indonesian economy. Under the direction of President Megawati and finance minister Boediono, the economy has performed remarkably well. The rupiah is sharply down. Interest rates are down by nearly 5% this year alone to 10.7%. Inflation is stabilizing at around 8%. The Jakarta Stock Exchange is up 20% this year and for the first time in years, new buildings are sprouting up in downtown Jakarta.
Some economists are worried about weakening domestic consumption, which could badly affect banks, such as Mandiri, that are aiming at consumer and retail finance. However, anecdotal evidence from speaking to foreign banks operating in the retail banking space in Indonesia however suggests that business has never been so good. In particular there is increasing demand for auto loans and mortgages, although demand fro credit cards has flattened out.
Investors will now the chance to invest in a stock that more than any other reflects the overall performance of the Indonesian economy. Co-leads on the international portion of the deal are UBS, Fox-Pitt Kelton and CLSA. Co-leads on the domestic portion are Ciptadena, Trimegah Securities and Mandiri Sekuritas.
