DBS to buy Temasek’s stake in Bank Danamon Indonesia

DBS said in a statement to the Singapore Stock Exchange that it would also seek to purchase the 33% of Bank Danamon not already owned by Temasek. The bank will offer IDR7,000 in cash for each of the remaining shares, a 52% premium on Bank Danamon's March 30 closing price. It values the entire company - Indonesia's sixth-largest lender by assets, with a 3,000-branch network and six million customers - at 2.62x book value.

Temasek is DBS' controlling shareholder. The sovereign wealth fund, acting through its Fullerton Financial unit, and Deutsche Bank paid IDR3.08 trillion ($336 million) for a 51% stake in Bank Danamon in 2003. The acquisition vehicle, known as Asia Financial, now owns 67% of the bank.

"Indonesia is an exciting Asian market and we believe that we will be able to contribute towards the growth of the Indonesian banking sector, especially in areas such as infrastructure financing, project financing, trade finance and syariah banking," Piyush Gupta, CEO of DBS, said in the statement. "With Danamon we will be able to significantly diversify our revenue mix."

Indonesia's financial services industry has become a popular target for private equity investors who see it as a proxy for strong consumer growth in the country.

However, valuations remain a concern. David East, a transactions and restructuring partner with KPMG in Jakarta, told AVCJ last month that deals are already breaking down due to differences over price. He cited HSBC's purchase of a controlling stake in Bank Ekonomi Raharja for $607 million in 2008, which priced the lender at 4.1x book value. "A lot of smaller banks with questionable loan books are still benchmarking their pricing off that deal," East said.

Based on this analysis, DBS' valuation of Bank Danamon appears favorable.

The transaction comes amid uncertainty about foreign ownership of Indonesian banks. Last summer domestic regulators proposed reducing the legal limit a foreign entity can hold in a local bank to 50% or less from the current 99%. However, Darmin Nasution, the central bank governor, told media that state banks and branches of foreign banks will likely be exempted from the rule.

It is therefore possible that Temasek would have been forced to sell down its holding in Bank Danamon anyway. As a foreign bank rather than a pure financial investor, DBS might have a better claim to exemption, or at least not retroactive implementation, but it remains unclear.

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