Reuters: Financial Services and Real Estate: UPDATE 3-DBS in talks to buy Temasek stake in Indonesia's Danamon-sources

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UPDATE 3-DBS in talks to buy Temasek stake in Indonesia's Danamon-sources Mar 31st 2012, 02:59 Fri Mar 30, 2012 10:59pm EDT * Announcement expected on Monday - sources * Temasek arm's stake in Danamon worth $3.2 billion * Biggest DBS deal since it bought Hong Kong lender in 2001 (adds detail on Monday announcement, Temasek) By Saeed Azhar, Kevin Lim and Janeman Latul SINGAPORE/JAKARTA, March 31 (Reuters) - Singapore's biggest bank DBS has made the country's state investor Temasek an offer for its $3.2 billion majority stake in Indonesia's Bank Danamon, sources said on Friday, setting up Indonesia's biggest bank takeover. The acquisition would also be the first major deal by DBS Group's Chief Executive Piyush Gupta, who took the helm of the Singapore lender in late 2009. Over the last two years, he had focused on turning around its existing businesses. DBS's biggest-ever deal was its $5.8 billion purchase of Hong Kong's Dao Heng Bank in 2001. DBS, Southeast Asia's biggest lender, is 29 percent owned by Singapore state investor Temasek. The company declined to comment. "The Indonesian economy has been doing well. It's good to have a bigger footprint," said Roger Tan, chief executive of SIAS Research, the research arm of the Securities Investors' Association of Singapore (SIAS). "The question is how much additional value DBS can get and the over-premium they will have to pay." Gupta, a former Citigroup executive, is in Jakarta with a small group of senior managers to thrash out the price and financial conditions, one of the sources told Reuters. "DBS bosses cancelled all internal meetings and have all gone overseas," the source said. An announcement on the bid is expected on Monday, source said. DBS, which earns the bulk of its revenue from Singapore and Hong Kong, currently has a small presence in Indonesia. Temasek's 68 percent stake in the Indonesian lender is valued at around $3.2 billion based on Danamon's last traded price. Temasek's unit Fullerton said it has received an offer for the stake, but did not identify the buyer. Danamon shares have been suspended from March 30 to April 2. The Danamon stake is Temasek's last remaining bank holdings in Indonesia after the state investor and its joint venture partner sold its controlling stake in another lender, Bank Internasional Indonesia BII, in 2008 for $1.24 billion. The sale is also a sign that Temasek is restructuring its portfolio of financial services companies, which currently account for 36 percent of its assets. Temasek managed about $160 billion of assets as of March 2011. Danamon said on Friday its biggest shareholder, controlled by Temasek, received an offer from an unnamed investor to sell the stake and asked for a share trading halt until April 2. OBSTACLES AHEAD It may not be a smooth deal. Indonesia has said it could impose bank ownership limits, including those on foreign investors that recently scuttled some cross-border deals. But the proposed purchase does raise questions about whether the Indonesian central bank will really impose limits on ownership which would have major repercussions for the domestic banking industry. Eight of Indonesia's top 11 banks by market value are either controlled by foreign banks, business families, private equity firms or wealth funds. "DBS finally has the guts to do it but the question is how high is the valuation for Danamon?" said Teguh Hartanto, a senior banking analyst at PT Bahana Securities. "The challenge for Danamon is harder over the coming years as their cost of funding is expensive compared to other banks and the central bank's rule on loan downpayments will also hurt them as they got around 50 percent of annual profit from Adira Finance." Banking penetration is relatively low in Indonesia, the world's fourth most-populous nation, and loan growth is running at 20 percent a year. Danamon chief executive Henry Ho told Reuters last year he saw investors buying smaller lenders in Indonesia as they look for long-term returns in a sector delivering 20 percent loan growth. "No one is going to marry off the daughter without getting a dowry," Ho said in the rare interview. (Editing by Jonathan Thatcher) Link this Share this Digg this Email Reprints

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