Wednesday June 27, 2012
DBS takeover may just scrape through with US$7.2bil deal
SINGAPORE: The gloom surrounding DBS Group's US$7.2bil bid for Indonesia's Bank Danamon is giving way to renewed optimism, with signals from the central bank in Jakarta suggesting the Singapore lender's takeover may just scrape through.
South-East Asia's biggest banking takeover bid was thrown into limbo in April, when Bank Indonesia (BI) announced it would not approve the deal to buy its sixth biggest lender until it had published new regulations to cap ownership stakes in banks.
The central bank said it wanted to prevent its lenders falling captive to single interests and ensure that they had a diverse shareholder base holding management to account.
The new rules, first flagged more than a year ago, are due to be published by the end of June. Contrary to initial fears, industry watchers said BI may still allow some foreign banks to buy control of Indonesian lenders.
“There are hints dropped every couple of days that it might be allowed through,” said Derek Ovington, a Singapore-based banking analyst at CLSA.
In the latest sign, deputy governor Muliaman D. Hadad said yesterday that majority foreign ownership might be approved by the central bank, depending on the bank's financial strength.
“Stake ownership in general will be 20%, 30%, 40%,” he told reporters. “If more than 40%, it will be decided case-by-case and must get BI approval.”
That followed other hints in recent days from BI officials that it may allow the current 99% single ownership threshold to remain in exceptional cases, where the single shareholder is a well-governed financial institution, raising hopes for DBS's Bank Danamon bid.
Previously, BI had suggested that it would allow individuals or families to only hold up to 30% of local lenders, while financial institutions' holdings would be capped at 40%.
Indonesia's economy has been drawing strong investor interest in recent years for its booming domestic demand and resources, but policymakers have rattled sentiment with a series of proposals on foreign asset ownership.
Recent proposals limiting foreign ownership in mining companies to 49% has fuelled concerns Indonesia is becoming increasingly hostile to foreign investment.
Indonesia is one of the rare emerging markets in Asia where foreigners can currently hold controlling stakes in domestic banks. Many countries including, China, India, Thailand and Malaysia have capped foreign ownerships at below 51%.
Indeed, eight of the G-20 economy's top 11 banks by market value including Bank Danamon itself are controlled by foreign banks, business families, private equity firms or wealth funds. The central bank has said the new rules will apply to new investments, and would not force existing shareholders to instantly sell-down their stakes to below the new thresholds.
Lawyers and analysts say the central bank has been testing market appetite for its proposed changes through comments to the media and then modifying its plans according to the reaction.
“What's been happening is that Bank Indonesia has been communicating to the market informally through the press without actually stating the formal position,” said CLSA's Ovington. - Reuters
Expectations that the deal may go through after all have boosted Bank Danamon's share price by 12% in June, after it dropped about 5% last month. It is still trading around 15% below the 7,000 rupiah per share offered by DBS to minority shareholders.
“I think it will get done but BI will ask for tons of requirements, including capital control stuff as well as how long DBS can own Danamon's shares,” said Jemmy Paul, equity fund manager at Indonesia's Sucorinvest Asset Management.
Under a long-mooted deal that was announced in April, Singapore state investor Temasek will sell its 67.4% in Danamon in exchange for DBS shares, boosting the sovereign investor's stake in DBS to 40% from about 29% now.
DBS shares, which fell nearly 4% after the deal was announced, are down about 2% since that slide. - Reuters