Tuesday, April 12, 2005

Pulping Mandiri’s board

Last week, Antara news agency reported that Sugiharto, minister for SOEs, confirmed his plan to reshuffle board members of state-owned banks next month. No matter how good their 2004 financial performance, they will be sacked still. Some might be replaced with strong reasons, others not necessarily so, let say only because of they are too long in that position.

Literally, Sugiharto said, board changes will be decided in the shareholders meeting. But we all know the practices, it almost 100% decided by the minister and his deputies and their superior powerbrokers. While in his early days as the minister Sugiharto promised to fully utilize merit system in promotions or demotions, that’s not necessarily be the case if his environment don’t supportive enough or needs to have someone in particular post.

Like and dislike are also real life and real politic.

Let’s take a look at Bank Mandiri, the largest state-owned bank in the country. No other SOE bank that has attracted so much attentions by the media than this bank in the last few months. What’s at stake? The board change. The new regime needs to have someone other than Neloe and his colleagues. Neloe has been served as Mandiri’s CEO since 2000 under Wahid presidency, survived Megawati’s presidency, and now seems near its end.

Don’t look at financial results. Share price, earnings per share, net income, tax, or other fancy indicators are all higher. So you can’t change the board if you look at these numbers.

Even if people mention about bad loans ratio, Mandiri’s non-performing loans (NPL) is well below national average. But poor handling on bad loans to Kiani Kertas and Raja Garuda Mas, both pulp and paper producers are too big to be neglected with US$200 million and US$600 million respectively. Supreme Audit (BPK) found RGM's problem in its 2002 audit, while Kiani in 2004 audit on Mandiri's portfolio.

Take a look at Kiani Kertas. From the beginning, when Mandiri acquired bad loans asset from IBRA, Central Bank, though agreed, had warned the bank to be careful. Kiani, now in the hands of retired generals Prabowo and Luhut Panjaitan, failed to get fresh capital injection as part of debt restructuring mandated by Mandiri. Kiani once owned by former president Soeharto’s golf buddy, Bob Hassan (soon be released from Nusakambangan), actually is a good asset where Mandiri could get more than enough to cover its loans should it fail to restructure. The problem is why Mandiri don’t do that?

We could ask the same question regarding Mandiri’s write-off and write-back of RGM’s US$600 million bad loans. We couldn’t understand why RGM deserved to get that while at the same time the company’s Sateri International acquired a dissolving pulp company in Brazil (August 2003) and APRIL (RGM’s pulp and paper division which also parent company for Riau Pulp/Riau Complex) build huge pulp and paper plant in Guangdong, China with US$1.98 billion. Last year, APRIL announced its plan to acquire 90% share at Shangdong Rizhao, a pulp and paper company in China.

I bet Mandiri knew exactly what’s going on out there, including RGM’s expansion overseas. Mandiri also knew very well so many investors have interest to inject US$50 million to Kiani. The fact that they didn’t do what they should means that Mandiri’s board is prepared to be pulped by their shareholders.

Other interesting fact is both Mandiri and RGM hired Credit Suisse First Boston (CSFB) as advisor. Mandiri appointed CSFB for its IPO in early 2001 toward the listing of Mandiri's shares in June 2003. During the period, Sateri International, a subsdiary of RGM (Mandiri's debitor), appointed CSFB as advisor and financier of US$112 million acquisition of Bacell SA, Brazil (later renamed Bahia Pulp SA) which was completed in August 2003.

What we don't know is whether Mandiri's decision to write-off (first in 2002), write-back (also in 2002), and partly write-off RGM's debts (2004) had something to do with CSFB's role. Neither we know if CSFB properly advised Mandiri on that matter. Unfortunately BPK's audit didn't disclose that. Media also missed that.

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