DBS, Singapore’s biggest bank, has been given approval by Indonesia’s central bank to purchase 40% of Bank Danamon. If Singapore permits Indonesian lenders to open more branches in the city-state, then it could lead to a full takeover and would be Indonesia’s largest ever foreign acquisition.
DBS will pay Temasek $2.75 billion for the holding. The state-owned investment company owns 67% of Danamon and holds a 29.7% controlling interest in DBS. In April 2012, DBS made a bid to buy the whole of Danamon, but was prevented by new rules introduced in Indonesia in July that limited individual ownership of its banks to 40%.
The restriction can be waived by Bank Indonesia if certain corporate governance conditions are met, or in this case, if the Monetary Authority of Singapore (MAS) provides “reciprocity”. MAS said yesterday that it was looking at ways to open “further access to each other’s markets”.
A complete takeover would value Danamom at about $6.8 billion, and earlier this month DBS chief executive Piyush Gupta said that he was reluctant to take minority stakes in other banks because DBS would have to set aside tier-1 capital to conform to Basel 3 rules.
DBS is keen to diversify its revenue sources, achieving a more balanced mix across Greater China, India and Southeast Asia.
The decision by Bank Indonesia governor Darmin Nasution might make foreign banks more reluctant to try to penetrate the Indonesian market.
“The [Bank Indonesia] decision is likely to be a precedent for prospective foreign banks,” said Fitch Ratings in a statement yesterday. “If there is a limited chance of ultimately gaining majority control, this may deter some long-term investors from looking to establish and build a local franchise,” it added.
Nevertheless, Japan’s Sumitomo Mitsui Financial Group is hoping to gain approval for its $1.52 billion purchase of 40% of Tabungan Pensiunan Nasional from US private equity firm TPG.
Indonesia has had one of the most accessible banking sectors in Asia, and it is only recently that it has started to impose ownership restrictions. In March, the central bank indicated that buyers of 40% stakes might have to wait five years before they could raise their holdings.
“Indonesia as a whole remains an attractive banking market,” says Fitch. “The cap on Indonesian bank ownership of up to 40% is still high by regional comparison despite the new regulatory restrictions.”
Separately, Temasek said yesterday that it would pay HK$1.534 billion ($198 million) for another 280 million shares in ICBC. It is buying the shares from Goldman Sachs, which is divesting its long-term holding in the leading Chinese lender. Temasek’s stake will be raised to 7.04%.
