TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
DBS ditches Rp 66.4t deal
DBS Group Holdings Ltd, Southeast Asiaâs largest bank, has at last called off its plan to acquire Bank Danamon due to prolonged uncertainty, a move that could hurt Indonesiaâs image and limit the archipelago in its attempt to attract much-needed foreign investment
Change Size
D
BS Group Holdings Ltd, Southeast Asia's largest bank, has at last called off its plan to acquire Bank Danamon due to prolonged uncertainty, a move that could hurt Indonesia's image and limit the archipelago in its attempt to attract much-needed foreign investment.
DBS Group's communications team said on Wednesday that the Singapore-based bank would not propose an extension of the Aug. 1 deadline to take over the Indonesian bank. 'It will not extend the agreement, so the acquisition plan has been dropped', the team said in an email.
The decision marked the end of DBS Bank's uphill battle to win a majority stake in Danamon, with the 15-month long negotiation process involving two central banks from Indonesia and Singapore.
Bank Indonesia (BI) used the deal as a bargaining chip to push for greater access for state-run lenders wanting to expand in Singapore, which is known for its protective banking industry. At the same time, the Monetary Authority of Singapore (MAS) sought to support the overseas expansion of its banks, which faced limited growth domestically.
'We would like to express our deepest appreciation to the regulators in Indonesia and Singapore for giving the transaction due consideration,' DBS Group CEO Piyush Gupta said in a statement.
However, despite dropping the deal, Gupta hinted that the struggle to fight for Indonesia's market might not end there. The DBS Group remained 'open to opportunities as they arise', he said, citing the positive long-term potential of the banking industry in the archipelago.
Singapore's DBS Group announced in April last year to acquire a 99 percent stake in Danamon including a 67.4 percent stake from Fullerton Financial, a unit of Temasek Holdings Pte ' for Rp 66.4 trillion (US$6.8 billion).
DBS had proposed acquiring the 67.4 percent stake for Rp 45.2 trillion in Danamon held by Fullerton Financial by allowing it to swap its Danamon holdings for DBS shares. The exchange was to be at a price of Rp 7,000 for each Danamon share and called for DBS to issue 439 million new shares to the Temasek unit at S$14.07 apiece, increasing the stake held in DBS by Singapore's state-owned investment company to 40.4 percent from 29.5 percent.
Following that transaction, DBS would set aside Rp 21.2 trillion in a tender offer for any remaining Danamon stock for Rp 7,000 a share, taking its holding in the Indonesian bank to 99 percent.
The deal raised concerns among local bankers and politicians who were worried about the overwhelming dominance of foreigners in the banking sector.
BI has agreed to give permission for DBS Group to acquire only a 40 percent stake in Danamon. The approval for higher than 40 percent, BI said, would depend on the commitment of the Singaporean central bank to give banking permits requested by Indonesia's state run lenders: Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI).
'As far as I know, there is no development on the issue. We will continue to ask for permits [...] but no response has been made,' Bank Mandiri finance and strategy director Pahala N. Mansury wrote in a text message on Wednesday.
In an email sent to The Jakarta Post, the Singaporean central bank responded: 'MAS has always said this is a decision for DBS' board, senior management and shareholders to make. We will continue to work with Bank Indonesia to explore further access by our respective financial institutions into each other market.'
The deal's collapse may also pose a setback for DBS Group in its mission to curb its dependency in Singapore, the banking industry of which is known as the least profitable in the region due to its saturated and overcrowded financial sector.
Indonesia's banking industry is among the world's fastest-growing and most profitable. The average return on equity of Indonesia's five biggest banks is 23 percent, higher than the 21 percent in banks of a smaller size in China, and more than double the 9 percent recorded in the US, according to Bloomberg.
The industry has posted lending growth of more than 20 percent over the last three years, with profit growth always exceeding an impressive 15 percent.
'The one suffering the most losses from this is DBS, which lost the opportunity to improve their balance sheet by tapping Indonesia's highly profitable banking market,' said Raden Pardede, a banking analyst with Creco Consulting.
The deal's collapse came at a wrong time for Indonesia, which desperately needs to attract foreign investment to support its under-pressure balance of payments, Raden noted.
'After this, some investors might have a change of mind regarding the investment environment in Indonesia,' Raden.
