Bank Mandiri IPO plan faces new uncertainty

Bank Mandiri IPO plan faces new uncertainty

The Jakarta Post, Jakarta

The government's plan to reschedule the maturity period of its
bank recapitalization bonds could create new uncertainty for the
initial public offering (IPO) plan of the giant Bank Mandiri,
according to a top executive of the state-owned bank.

Bank Mandiri president E.C.W. Neloe said on Thursday the
government must quickly decide on the bond rescheduling plan so
that the terms of the new policy could be disclosed to investors
before the IPO is launched.

Speaking to reporters on the sidelines of a press conference
held to unveil the bank's first half financial results, Neloe
warned that every six-months delay in the IPO plan would cost the
bank some US$3 million to $4 million in preparatory expenses
including fees for consultants and advisors.

He added that the uncertainty would affect the pricing of the
IPO.

Bank Mandiri was supposed to have launched an IPO in October
last year to raise cash for working capital, but the plan had
been delayed several times due to administrative and legal
problems relating to government equity participation in the bank.

The government is now planning to launch the IPO in the fourth
quarter of this year, with part of the proceeds to go into state
coffers. Under the plan a 30 percent stake in the bank will be
offered to investors.

The divestment plan is part of an agreement between the
government and the International Monetary Fund, which is
providing the country with a $5 billion bailout program. A
further delay could affect relations with the IMF and hurt
investor confidence in the country.

But there has been speculation that the IPO may once again be
delayed amid reports of unresolved administrative and legal
problems.

And now, the bond maturity rescheduling plan, that the
government calls "reprofiling" policy, may negatively affect
investor sentiment if they continue to be kept in the dark about
the new plan.

"It is important that the government make a quick decision,"
Neloe said.

Under the reprofiling plan, the government would extend the
maturity period of the recapitalization bonds injected into
ailing banks in the late 1990s. Without such a measure, it is
feared that the government could not repay the bulk of bonds
maturing between 2004 and 2009, thus triggering a fiscal
disaster.

The plan has been widely reported by the press during the past
week, but top government officials have not provided clear
details about the new policy.

Analysts have said that by extending the maturity period of
the bonds, the interest rate of the bonds must be increased. But
this will create a heavier burden on the government already
struggling to lower the state budget deficit to help create
macroeconomic stability.

Bank Mandiri is the largest bank in the country with total
assets of around Rp 248.88 trillion as of end of June 2002.

On Thursday, the bank announced that its first-half net profit
jumped by 56 percent to Rp 1.77 trillion compared to the same
period last year.

The increase in net profit is mainly due to revenue from
government bonds and a lower provision expense, the bank said.

Bank Mandiri holds some Rp 153.85 trillion worth of government
bonds.

Out of the total net interest income of Rp 3.23 trillion
during the first six months of this year, some 68 percent comes
from government bonds, and only 18 percent from lending.

The bank said that as loan quality had been improving,
provision expense during the period declined, with provision to
non-performing loan exposure falling to 123.2 percent from 221.9
percent.

Bank Mandiri said that new lending during the first half of
this year reached Rp 8.4 trillion.