Mandiri bonds attract banks, investors

Mandiri bonds attract banks, investors

Dow Jones, Hong Kong

Indonesian state-owned P.T. Bank Mandiri's upcoming Eurobond offer will mostly be sold to banks and private banking clients, a senior official at lead manager HSBC investment bank told Dow Jones Newswires.

Bank Mandiri and HSBC are expected to hold investor presentations in Hong Kong Dec. 3 and Singapore Dec. 4 to sell US$100 million worth of five-year floating rate notes with three- year put and call options.

However, bankers say the presentations may not be necessary. Some argue that banks are already starting to chase the paper, while others say HSBC will find itself with most of the deal on its books.

"It's more of a loan-style FRN than a real capital market deal" and chances are HSBC will keep most of it on its books, said one primary dealer.

But the HSBC official said the bond offer as a true capital market deal that will attract "broad-based interest" from investors looking for higher yielding investments. Among those interested are banks and private banking clients, who are high net worth retail clients.

Another primary dealer said that he believes the deal will be sold fairly easily, given the price talk of 500 basis points over six-month London interbank offered rates. In comparison, Indonesia's outstanding sovereign bond due 2006 is offering a spread of about 450 basis points over Libor.

In addition, Mandiri's put and call options after three years make it a de facto three-year deal. Thus a three-year bond that offers a yield 50 basis points higher than the Indonesian five- year bond is a very generous offer for investors, albeit an expensive exercise for the borrower.

One of the primary dealers said the spread would have been significantly lower if it were a loan-type deal but as the HSBC official said, "if Bank Mandiri wanted a loan, we would have done a loan."

Another feature that is attracting banks' interest in the deal is its 20 percent risk weighting, said one analyst.

Mandiri's is the first post Asian financial crisis offshore sovereign-linked deal out of Indonesia, the HSBC official said. The size, although small on international standards, offers more liquidity than most other Indonesian bonds, he said, which explains the attraction for clients who are looking for liquid, higher yielding Indonesian assets.

The HSBC official said that interest has been seen globally, but market observers believe a large part of investor interest will likely come from Indonesia.

Targeting specific investors will likely help sell the bond, given that Indonesia has fallen off many investors' radar screens because of its low credit rating and continued uncertainty over the country's future.

Credit rating agency Moody's Investors Service Inc. has assigned a prospective B3 rating to Bank Mandiri's proposed notes, a rating that corresponds to Indonesia's sovereign ceiling.

Regardless of whether it is a true floating rate note or a loan-type deal, the analyst said that it will still be "an interesting deal" to look at because it will re-open the Asian high yield sector and comes at a time when investors are starting to close their books for the year.