Government hypes bank IPO
Dadan Wijaksana, The Jakarta Post, Jakarta
Next week's initial public offering (IPO) by state Bank Rakyat Indonesia (BRI) is expected to generate a handsome Rp 4.17 trillion (about US$490 million) in proceeds amid strong demand from investors, a government official said on Wednesday.
Pandu Djajanto, a senior official at the Office of the State Minister for State Enterprises, said the strong demand had allowed the government to set the IPO price at Rp 875 per share, the upper end of the previous price range given to investors.
The sale, which will see a total of 4.76 billion shares on offer, or 40.5 percent of total shares, will be the country's largest IPO since the economic crisis in terms of value as well as shares on offer.
Of the total shares on offer, some 381.18 million shares, about 8 percent, have been reserved for retail investors and the bank's employees.
Pandu said that of the total proceeds, Rp 2.26 trillion would go into the state coffers, part of the government's privatization income to be used to help plug the state budget deficit. BRI will receive the remainder of the proceeds, which will strengthen its capital.
The apparent high demand for the bank's shares seems to confirm earlier remarks from analysts, who said the IPO would draw huge interest from investors.
Though it is only the country's fourth largest bank in terms of assets, BRI is currently the largest bank in the microfinancing business, boasting close to 4,000 branch offices across the country.
The total stake to be offered was scaled down from the initially planned 45 percent, mostly because the government was confident of hitting its proceeds target.
A price of Rp 875 per BRI share is equivalent to 1.4 times the book value, higher than the price set in the recent IPO of Bank Mandiri, the country's largest state bank in terms of assets, which was priced at one times its book value.
Among the reasons BRI is regarded as the strongest state-owned lender by investors is its commitment to extending loans to small businesspeople, mostly farmers.
Of the Rp 43.6 trillion in outstanding loans at BRI as of June this year, 91.62 percent were extended to micro, small and medium-sized businesses.
Such loans have proven to carry little risk of default compared to loan exposure to large corporations. Small businesses are regarded as being more conscientious about repaying debts than large ones.
As a result, BRI currently has the highest return on equity (ROE) in the banking industry at 40 percent, almost twice the return booked by other banks on average.
Another sweetener is the composition of the bank's assets, which mostly are in the form of credits. Government recapitalization bonds account for less than one-third of BRI's assets.
As of June, BRI had recorded a net profit of Rp 1.17 trillion, up from Rp 1.16 trillion in the same period last year, with assets valued at Rp 92 trillion.
Samuel Tobing, investment director of state-owned insurance firm PT Jamsostek, said the company wanted to invest significantly in BRI's IPO for long-term investment purposes.
He was clarifying an earlier statement by the company's president, who told this paper that half of the shares purchased in the IPO would be for short-term investment.