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DBS walks away from bid to acquire Indonesia’s Bank Danamon

SINGAPORE — DBS has ended its bid for PT Bank Danamon in Indonesia, after the proposed transaction languished for over a year waiting for approval from Indonesia’s financial regulators.

SINGAPORE — DBS has ended its bid for PT Bank Danamon in Indonesia, after the proposed transaction languished for over a year waiting for approval from Indonesia’s financial regulators.

While this is a setback to DBS’ ambition to establish a stronger presence in South-east Asia’s biggest economy, a bank spokesman told TODAY it remains “positive” about Indonesia’s potential. “It has been 16 months since DBS and Fullerton Financial Holdings (FFH) entered into the transaction,” the spokesman said. “But we remain positive about Indonesia’s long-term potential, and will continue to grow our DBS Indonesia franchise.”

First proposed in April 2012, the deal would have seen DBS acquiring a 67.37 per cent stake in Danamon from Temasek Holdings-owned FFH for 45.2 trillion rupiah (S$542.4 million). If that transaction had gone through, it would have triggered a mandatory offer for the rest of Danamon.

But the deal fell into a regulatory black hole as Indonesian officials contemplated whether to open the country’s doors to foreign banks. While waiting for a decision, the deal’s deadline was extended twice.

A key development came in May when Bank Indonesia signalled it would approve the purchase of a 40 per cent stake, reflecting newly-introduced foreign investment thresholds. But the acquisition of the controlling stake that DBS coveted would not be approved unless Singapore allowed Indonesian banks to build their presence here, the central bank’s former governor Darmin Nasution said.

Commenting on yesterday’s news, the Monetary Authority of Singapore (MAS) said it “will continue to work with Bank Indonesia to explore further access by our respective financial institutions into each other’s markets”.

The persistent regulatory uncertainty between both central banks may have been a major hurdle, said Mr Jason Hughes, head of sales trading at CMC Markets: “The bid has gone through a long period of stalemate between the two regulators, and it might be that DBS has decided to cut its losses rather than let the process drag on.”

Meanwhile, going ahead with a deal to acquire 40 per cent may not have made financial sense for DBS. Announcing the decision, Chief Executive Officer Piyush Gupta, who just two weeks ago was “hopeful” about the deal, said that while the bank is open to opportunities as they arise, “DBS is committed to financial discipline and shareholder value creation”.

The deal would not be financially worthwhile for DBS without full control in Danamon, Fitch Ratings’ Director of Financial Institutions Alfred Chan told TODAY: “DBS deems it crucial that it has a high degree of management control on its major operations, considering its pan-Asian aspirations and aim to build a sustainable regional franchise,” he said. “The 40 per cent ownership cap … may impede DBS’ ability to steer Danamon’s strategic direction and risk appetite.”

“This, together with the sheer size of the transaction value, may also result in a less optimal use of capital, as an investment with a stake of between 10 per cent and 50 per cent needs to be fully deducted from core equity, according to Basel III capital rules,” Mr Chan added.

The outcome may, therefore, be a good thing for DBS, said Barclays’ chief analyst Sharnie Wong. “We believe the lapse of the deal is a near-term positive catalyst for DBS, due to the removal of the uncertainty over capital and better dividend outlook.”

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