Mandiri mulls loans from foreign banks

Mandiri mulls loans from foreign banks

Rendi A. Witular, The Jakarta Post, Jakarta

State-owned Bank Mandiri, the country's largest bank by
assets, plans to seek bilateral lending from foreign banks to
help refinance its maturing debts this year following a decision
to drop plans to raise the required funds on overseas bond
markets.

Mandiri vice president director I Wayan Pugeg said the bank
was likely to seek debt refinancing facilities from foreign banks
such as the London-based Hongkong and Shanghai Banking
Corporation Ltd. (HSBC).

"We would prefer to seek bilateral financing for our debts.
Currently, we are still studying proposals from several banks,
mostly foreign banks, such as HSBC," said Pugeg after a seminar
on Wednesday.

Pugeg said Mandiri had to service a maturing debt totaling
between US$300 million and $400 million this year, with the
initial plan being to refinance it by issuing bonds worth at
least $150 million.

He explained that bonds would now be Mandiri's last resort due
to concerns over a possible increase in the global interest rate
environment, which could create a heavier burden for the bank and
would likely be opposed by the central bank.

Regarding Mandiri's bad loans in ailing state-owned airline PT
Merpati Nusantara Airline, Pugeg said the bank was not willing to
convert the debts into equity unless other key creditors, such as
the government and state-owned flag carrier PT Garuda Indonesia,
agreed to do the same.

Merpati's debts to Mandiri stand at about Rp 220 billion
(US$24.5 million).

At a separate event, Mandiri president director E.C.W. Neloe
said the bank had urged Merpati to revise its business plan in
order for to allow creditors to gain maximum benefit from the
proposed debt to equity conversion.

"They have to improve their business plan, such as seeking out
more profitable routes, boosting operating efficiency and
improving the professionalism of management and staff. We are
currently still studying the feasibility of the conversion plan,"
said Neloe.

Aside from Merpati, Mandiri also has massive bad loans in
publicly listed food and beverage company PT Suba Indah and in
pulp and paper company PT Kiani Kertas, amounting to around Rp
300 billion and Rp 1.76 trillion respectively.

Neloe said that in the case of Suba Indah, Mandiri would try
to reschedule the repayment of the debt principal in order to
give the company a chance to revive its business so as to enable
it to repay its debt.

"Suba still has prospects as it remains committed to making
interest payments. We'll just have to give them a grace period,"
said Neloe without elaborating further.

As for Kiani, the bank is currently having problems with
commitments made by Kiani's new investor, Novela International,
to inject some $50 million of badly needed working capital into
the company. The capital is needed to help revive Kiani's
business so that it can pay its debts to Mandiri.

"We will meet with Kiani management next week to discuss the
pledged working capital. Novela has thus far injected $15 million
into Kiani, but is having problem now paying the remaining $35
million. They said they would settle the matter in December,"
said Neloe.

Due primarily to the Kiani bad loans, Mandiri's gross non-
performing loans ratio rose to 8.4 percent from 6.6 percent as of
the first quarter of this year as the bank had to set aside a
huge provision to cover the bad assets.

Mandiri bought the Kiani loans from the now-defunct Indonesian
Bank Restructuring Agency in 2001.

Mandiri shares ended higher by Rp 100 at Rp 1,575 on the
Jakarta Stock Exchange on Wednesday.