DBS abandons takeover bid for Indonesia’s Bank Danamon

DBS won approval in May 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, it wanted to acquire the 67.4% stake in Danamon owned by Temasek Holdings - also DBS' controlling shareholder - with a view to mounting a full takeover.

The deadline for the bank to secure majority control was extended by two months in June but now the deal has been taken off the table. DBS' stock was up 2.5% in morning trading, perhaps reflecting investor concerns that it was willing to pay too much for Danamon. The offer valued the lender at 2.62x price-to-book value.

DBS CEO Piyush Gupta said it might take five years of organic expansion before the bank could match Danamon's $400 million in profit from the country. When DBS announced the bid 15 months ago, it said that 2011 revenue from South and Southeast Asia would have increased to 27% from 7% with Danamon, while its reliance on Singapore would have fallen to 49% from 62%.

Several analysts told Reuters that deteriorating market conditions in Indonesia - liquidity has tightened and the rupiah has fallen by about 11% since the deal was announced - may have impacted DBS' thinking.

Although Indonesia introduced the 40% cap, the country'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. Darmin Nasution, 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 historically loose foreign ownership restrictions. Until 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.

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• Topics
• Financials
• Southeast Asia
• Buyouts
• Southeast Asia
• Singapore
• Indonesia
• Financial Services
• buyout
• M&A
• Temasek Holdings