www.thejakartaglobe.com - Just days after a slew of street protests threatened to undermine investment, the country’s banking system got a boost over the weekend when Singapore giant DBS Group Holdings expressed its intention to take control of Bank Danamon, Indonesia’s fifth largest bank.
Analysts and investment bankers in Jakarta said on Monday that the transaction, the biggest in Indonesia’s banking history, was a vote of foreign investors’ confidence in Indonesia’s banking system and growing economy.
“This is very positive. A major strategic investor like DBS is willing to make a multi-billion dollar investment in Indonesia amid concern in the United States and Europe. It shows that Indonesia is once again a good place to invest,” said an investment banker at a foreign bank who declined to be identified. (source)
Such positive sentiment might have been derailed had demonstrations continued. Tens of thousands of people protested last week against the government’s plan to raise the price of subsidized fuel, before legislators blocked the plan on Friday.
DBS, a unit of Singapore’s sovereign wealth fund Temasek Holdings, agreed on Monday to buy control of Danamon in a deal valued at 9.1 billion Singapore dollars ($7.3 billion). That would be higher than Malayan Banking’s $2.7 billion takeover of Bank Internasional Indonesia in 2008. Officials at both Danamon and Temasek would not comment.
Piyus Gupta, chief executive of DBS, dismissed market concerns over the price of the deal, which involves paying more than 50 percent of Danamon’s current market price.
“The 52 percent premium is not cheap. On the other hand, Indonesia is a high-growth country. We expect to pay a full price to be able to expand our franchise here,” Gupta said in Jakarta.
Gupta said that based on price-to-book ratio — which values a company’s stock price relative to its assets — companies in Indonesia may be deemed expensive, at 2.2 to 2.3 times the average, compared to multiples of 1.6 in Malaysia, 1.2 in China and 0.16 in the West.
Julita Wikana, a banking analyst at Fitch Ratings Indonesia, suggested that the transaction value is reasonable compared to previous acquisitions by foreign banks of local lenders.
“Malaysia’s Maybank bought Bank Internasional Indonesia at four times its book value,” Julita said. She also noted that London-based HSBC Holdings bought control of Bank Ekonomi at four times its book value.
“You can just compare Danamon to its peers,” and DBS is buying Danamon at 2.6 times its book value, Julita said.
Other analysts did not share Julita’s view. “For long-term investment, the 52 percent premium is pretty attractive. But when you consider Danamon’s 2011 earnings and 2012 forecast, it is still considered pricey,” said Edwin Sebayang, head of MNC Securities in Jakarta.
Danamon’s 2011 net income rose 16 percent to Rp 3.34 trillion ($364 million) from a year earlier, boosted by lending to small and medium-sized businesses.
Moody’s Investors Service, an international rating agency, was also critical of DBS’s acquisition.
“While this strategy will improve the diversification of the group’s revenue streams and potentially improve overall profitability, we are mindful that these high growth regional Asian markets also carry higher risks,” Moody’s said in a statement on Monday.
Still, Moody’s said the proposed acquisition of Danamon was consistent with DBS’s long-term strategy to generate half of its revenue from sources outside Singapore.
Other analysts in Jakarta said that DBS’s move would be in line with the Indonesian central bank’s push to consolidate the nation’s 120 commercial lenders into 70.
Bank Indonesia governor Darmin Nasution has been coaxing the country’s commercial banks to consolidate through mergers and acquisitions in a bid to improve performance.
DBS is trying to capitalize on Indonesia’s growing economy and Danamon’s extensive network. Danamon has more than 3,000 branches across the nation and 3,000 ATMs, including through networks such as ATM Bersama.
Temasek first bought control of Danamon in 2003 from the defunct Indonesian Banking Restructuring Agency, set up by the government during the 1997 financial crisis to rehabilitate the country’s banking system. DBS also has a local unit, DBS Bank Indonesia, which has been in the country since 1997 but only has 40 branches.
Henry Ho, president director of Danamon, said that there would be more Danamon branches following DBS’s takeover.
DBS hired Credit Suisse Group and Morgan Stanley to help it acquire the stake in Danamon. It also named Danareksa Sekuritas as local adviser.
While the name of the surviving entity has not yet been decided, Gupta hinted on Monday that Danamon has a strong brand in the Indonesian market.
“We haven’t talk about branding yet, but Danamon is a big name in Indonesia and we want to leverage on that,” Gupta said. “It is an important transaction for DBS.”
The acquisition will result in Danamon’s capital adequacy ratio falling to 14.7 percent from 15.8 percent, which Gupta said “is still in a very strong position.”
Source: http://www.thejakartaglobe.com/business/dbss-danamon-deal-a-vote-of-confidence-in-indonesia/508836 - April 2, 2012
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