Mandiri may use recapitalization bonds for BII buy<\/p>\n
JAKARTA (JP): State Bank Mandiri said on Friday it planned
\nusing its recapitalization bonds to finance the acquisition of
\npublicly listed PT Bank Internasional Indonesia (BII), amid
\ndifficulties to raise revenue.<\/p>\n
Bank Mandiri president E.C.W. Neloe said the bank had proposed
\nthe plan to the government.<\/p>\n
\"There haven't been any decisions yet, but we have stated that
\nwe want to pay (for the acquisition) with the recapitalization
\nbonds,\" Neloe told reporters, following a signing ceremony of
\nMoUs to extend loans for shrimp farmers.<\/p>\n
Bank Mandiri plans to provide an estimated Rp 60 billion
\n(about US$6 million) in commercial loans to shrimp farmers.<\/p>\n
Neloe said in financing BII's purchase, Bank Mandiri would pay
\nthe bonds to the Indonesian Bank Restructuring Agency (IBRA),
\nwhich owns a 56.7 percent stake in BII.<\/p>\n
He declined to explain the plan in more detail, saying he was
\nstill awaiting BII's due diligence for the details to become
\navailable.<\/p>\n
Earlier this month, Bank Mandiri announced plans to acquire
\nBII as part of a plan to boost the bank's retail market segment.<\/p>\n
Under the plan, BII would hold the right to accommodate Bank
\nMandiri's entrance and turn the former into a subsidiary of Bank
\nMandiri.<\/p>\n
So far, no estimation has been made over the value of the
\nacquisition.<\/p>\n
Neloe said the amount of bonds required to finance the
\nacquisition remains unknown, until after BII's due diligence.<\/p>\n
According to him, the due diligence may take about two months,
\nafter which he expected to finalize the acquisition by September
\nat the latest.<\/p>\n
Many believe the acquisition is aimed at saving BII from
\nclosure, on threats that its non-performing loans would become
\nunmanageable.<\/p>\n
Most of these loans have been extended to the affiliated Sinar
\nMas Group, the bank's former majority owner. At $1.2 billion the
\nloans account for about half of BII's credit portfolio.<\/p>\n
As part of the acquisition deal, the government has agreed to
\nextract the loans from BII's balance sheet.<\/p>\n
Commenting on Bank Mandiri's earnings, Neloe said Bank
\nIndonesia certificate rates of over 17 percent made it difficult
\nfor them to raise earnings.<\/p>\n
According to him, half of Bank Mandiri's recapitalization
\nbonds carry fixed coupon rates.<\/p>\n
Once SBI rates hover above the coupon's fixed rates, a bank
\nbecomes exposed to negative spread. This occurs when the bank
\ncannot cover the cost of its deposit interest rates with earnings
\nit made from the rates on loans or bonds.<\/p>\n
Fixed-rate bonds carry a coupon rate of 12 percent or 14
\npercent.<\/p>\n
Neloe said to raise revenue, the bank tried to recover some Rp
\n22 trillion in written-off bad loans, which it inherited from its
\nfour founding banks.<\/p>\n
Bank Mandiri was founded in 1999 from the merger of four state
\nbanks.<\/p>\n
\"Of the Rp 22 trillion, Rp 1.2 trillion had been recovered by
\nJuly; our target for the end of this year is Rp 2.5 trillion\" he
\nsaid.<\/p>\n
Neloe said the recovery of bad loans had dropped Bank
\nMandiri's nonperforming loan (NPL) ratio to some 16 to 17 percent
\nas against 27 percent last year.<\/p>\n
He said the bank was targeting an NPL ratio of 3.5 percent by
\nthe end of this year.<\/p>\n
\"But achieving that target looks difficult, it's more likely
\nthat we'll end up with 5 percent,\" he added.<\/p>\n
He also hoped to channel Rp 15 trillion in loans this year, of
\nwhich half would consist of new loans and the remainder from IBRA
\nunder a deal to swap bonds with loans.<\/p>\n
\"Our new loans have already reached some Rp 8 trillion, but on
\nthe other side, the IBRA's bond swap doesn't work,\" he said.<\/p>\n
Under the bond swap proposal, he said, Bank Mandiri would swap
\nits recapitalization bonds with restructured loans from IBRA.<\/p>\n
He said Bank Mandiri had asked for the transfer of Rp 1.5
\ntrillion in IBRA loans in exchange for the bonds.<\/p>\n
\"It (the bonds swap proposal) was approved by the Financial
\nSector Policy Committee (FSPC), but so far, there has been no
\nimplementation,\" Neloe said.<\/p>\n
He said that his bank has currently refrained from aggressive
\nlending, given the still unfavorable business climate and the
\nhigh lending rates that made investment expensive.<\/p>\n
\"In these times being aggressive is too risky, we might get
\ncaught in more bad loans,\" he said. (bkm)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/mandiri-may-use-recapitalization-bonds-for-bii-buy-1447893297",
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