Investors are still wary of Indonesian credit stories. With this in mind, Bank Mandiri should receive praise for its careful and thoughtful approach to the bond markets. It realized early on that to get the markets comfortable with its name and so allow it greater access to capital it was going to have to take the process slowly and step by step. Its success should make it easier for other Indonesian borrowers. As one banker says: “Other Indonesians want to enter the market and the likes of Mandiri are opening things up and making it very possible for this to happen. In the long term this is not only positive for Indonesia but also Asia as a whole.” In addition, the bank is seen as a strong proxy for the government. And in the government’s absence Bank Mandiri is viewed as the best way of gaining exposure to the country.
A compelling story Mandiri has come to the market three times since the Asian crisis, twice in the past 12 months. And each time it has come, its story has becoming more compelling and investors more trusting as it heads closer to its promised IPO.
In August the bank completed its $125 million lower tier 2 debt issue. Coming at a very volatile time in the credit markets when many global investors, especially those in the US, were becoming extremely risk averse, the deal was still well received in Asia. As Paddy O’Brien, head of debt at UBS, says: “When we started the process we walked into a horrible market, and it was a tribute to them that they were able to print any deal at all.” Those involved in the transaction believe that if markets hadn’t been so choppy the deal could easily have been upsized to $200 million.
Its second deal in April of this year is the one that really put Bank Mandiri on to the radar screen of many investors. Its kiddie steps and patience, as one banker describes the bank’s capital raising strategy, appeared to have paid off. The US dollar bond deal was increased from $200 million to $300 million after the book received some $1 billion in orders. As an observer says: “They put the deal out and the investors were biting their arms off.” Perhaps more important, the deal, which was always going to appeal to local Indonesian banks, was able to get out beyond Asia, something that the bank views as a necessity. Although 83% did still stay in the region, the Europeans picked up a healthy 15%.
With Indonesia expecting an upgrade in the next few months, Bank Mandiri will definitely benefit. And with the experience that it has picked up with its so far small forays into the international market, many believe that it will only be a matter of time before it is able to convince US accounts of its story.
