BNI may issue up to US$500m global bonds for acquisition

The nation’s fourth-largest lender by assets, state-run PT Bank Negara Indonesia Tbk (BBNI), may issue US dollar-denominated bonds worth between US$200 and $500 million in the second half of this year to strengthen reserves in light of planned acquisitions.

The bank, popularly known as BNI, will primarily use proceeds from the so-called subordinated debt (sub-debt) to lift its Tier 2 supplementary capital as reserves, which is currently at zero percent, president director Gatot M. Suwondo said Monday.

“We have become more careful on dollar [liquidity]. So, the purpose of sub-debt issuance is at least to own dollars, at a low price. We are still assessing. We’ll see later this year,” he told a press briefing. “In terms of liquidity and capital, we are okay. We want to book quality growth. Funding is actually enough.”

BNI has targeted 19 percent growth in lending this year and more than 30 percent surge in net profits. Capital adequacy ratio (CAR) and Tier 1 core capital was at about 15 percent, respectively, by the end of last year, well above banking regulator Bank Indonesia’s (BI) 8 percent requirement.

The lender, however, wants to acquire a bank that has a strong grip on micro loans, or more specifically, in the food sector, because of BNI’s limited exposure in the sectors — meaning additional funding will be required. “Funding for the acquisition could be obtained from a rights issue and sub-debt,” Gatot said.

BNI raised more than Rp 10 trillion (US$1.1 billion) by offering rights to its shares in December 2010.

“We are thinking of inorganic growth, but we are still assessing the acquisition. We want it to be significant, otherwise there is no use. If it would only boost lending by Rp 1 to 2 trillion, we would be better to disburse loans,” he added.

BNI is among the many lenders planning to issue debt papers this year.

“Though CAR requirement stays at a minimum of 8 percent, the Base III rule has prompted banks to have a minimum CAR of 12 percent. So, no wonder banks with CAR of 13 to 14 percent are planning on additional capital, in terms of shares through rights issue, and sub-debt,” banking expert Mirza Adityaswara said.

Fadlul Imansyah, vice president of investment at PT CIMB Principal Asset Management, said despite the shallow corporate bond market, government-backed firms always attract investors in terms of the lower risks they carry compared with private companies.

BNI has previously expressed interest in acquiring state securities firm PT Bahana Securities using its Rp 16 to Rp 17 trillion recapitalization (recap) bonds obtained as a liquidity support from BI to help survive the hard-hitting 1997/1998 financial crisis.

The purchase, aimed at helping BNI Securities to tap the underwriting business, was immediately opposed by the government because of the source of funding, which is not supposed to be tradable and can’t be cashed in for acquisition.

BNI then secured a Rp 114 billion deal with Japanese SBI Securities, a unit of investment firm SBI Holdings, to sell a 25 percent stake in its securities unit. This year, BNI is looking for a partner to buy a minority stake in its insurance unit, PT BNI Life Insurance, Gatot said.

BNI’s shares traded at Rp 3,425 on Monday. The bank has a Rp 63.9 trillion market value and has seen its stock prices go flat in the past one year, up only 1.8 percent from Rp 3,365 on Feb. 7 last year.