DBS gets Indonesia nod for smaller Danamon stake than sought

DBS Group Holdings got approval from Indonesia’s central bank to acquire a US$2.75 billion ($3.47 billion) stake in PT Bank Danamon Indonesia, giving Southeast Asia’s largest lender less control than it had sought.

DBS, which in April 2012 proposed buying all of Danamon from Temasek Holdings Pte and minority holders, will be allowed to purchase 40%, Bank Indonesia Governor Darmin Nasution said in parliament today in Jakarta. Last year’s agreement valued Danamon shares at 7,000 rupiah each, a 17% premium to their closing price today.

The decision may thwart DBS’s ambition of expanding in Indonesia, Southeast Asia’s most profitable lending market. Approval for the proposed US$6.8 billion ($8.57 billion) acquisition, which would have been Southeast Asia’s biggest banking takeover, has been delayed as Indonesia sought more access for its lenders in the island nation.

“I would have to question the rationale for going after a 40% stake,” said Matthew Smith, an analyst at Macquarie Capital Securities Singapore who rates DBS as “neutral.” “If they could just end up holding that, and never be able to consolidate, that’s got to be a risk.”

DBS spokeswoman Edna Koh declined to immediately comment on the Singapore-based bank’s plans.

The Indonesian central bank is seeking reciprocity for the three biggest state-owned Indonesian lenders’ operations in Singapore, Nasution said today. Those lenders are PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Bank Negara Indonesia, he said.

WIDER MARGINS

DBS targeted Danamon to help counter narrowing loan margins and waning credit demand in Singapore. The Singapore bank had agreed to pay about 45.2 trillion rupiah ($5.8 billion) to Temasek, Singapore’s state-owned investment company, for its 67.4% stake, and make a 21.2 trillion tender offer for the remaining shares at 7,000 rupiah each.

Ownership rules from Bank Indonesia, set after DBS announced its bid last year, limit banks’ initial purchases of stakes in the country’s lenders to 40%. Buyers meeting capital-strength criteria would be allowed to increase holdings over time, the regulator has said.

The central bank on March 6 signaled it may implement a five-year waiting period before acquirers can increase stakes above 40%. Foreign buyers must also commit to supporting Indonesia’s economy by lending to productive sectors, among other criteria, it said.