DBS buys more time for Bank Danamon control deal

Last month DBS won approval to buy a 40% interest in the bank for $2.75 billion, in accordance with the 40% cap on foreign ownership introduced last year.

However, Indonesia's central bank has the authority to make exceptions for lenders that reach certain standards in corporate governance and financial health. Sources tell AVCJ that some foreign banks have already received informal feedback that they can take controlling interests in domestic lenders.

The DBS-Danamon situation is complicated by complaints from Indonesian lenders that they are shut out of Singapore's banking market while Singaporean counterparts have greater freedom to operate in Indonesia. The central bank governor indicated that DBS would only get the go ahead if reciprocal efforts were made to open up the Singapore market.

It is a political debate that owes its origins to Indonesia's remarkably loose restrictions on foreign ownership of domestic banks. Until the 40% cap was introduced last year, overseas investors could hold up to 99% of a domestic player. As a result, eight of Indonesia's top 11 banks by market value are controlled by foreign banks, families, PE firms or sovereign wealth funds.

According to M&A advisors, uncertainty over the regulation led to a drop off in activity last year, but Indonesia's financial sector remains a popular - and pricey - target.

Should DBS' acquisition of Danamon go through it would value the Indonesian lender at 2.62x price-to-book (P/B) value.

However, many assets are valued at even higher levels. Would-be sellers in the banking sector use HSBC's acquisition of a controlling stake in Bank Ekonomi Raharja in 2008, which had a P/B of 4.1x, as a benchmark. Similarly, Japan's Mitsui Sumitomo Insurance paid 4x P/B for a 50% stake in Asuransi Jiwa Sinarmas, Indonesia's largest domestic life insurer, two years ago.

Differences in valuation expectations have resulted in the drop-off rate between formal negotiations and closed transactions being higher in Indonesia's financial services sector than anywhere else in the region. In many cases, sellers are under no pressure to do a deal and are merely testing the water.

Private equity investors are sticking to the sidelines until valuations moderate, although some are making the most of a lucrative exit opportunity. TPG Capital and Northstar Pacific Partners agreed to sell most of their stake in Bank Tabungan Pensiunan Nasional (BTPN) to Sumitomo Mitsui Banking Corp. for $1.56 billion, or 4.5x P/B.

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• Topics
• Financials
• Buyouts
• Southeast Asia
• Financial Services
• Indonesia
• Southeast Asia
• buyout
• Temasek Holdings