DBS, Singapore’s biggest bank by assets, has sought to draw a line under the uncertainty surrounding its planned S$9.1bn ($7.3bn) acquisition of Indonesia’s Bank Danamon, saying it will press ahead with a “formal application” to pursue the deal.
The acquisition was thrown into doubt shortly after it was unveiled in April when Jakarta unsettled foreign investors by indicating it would cap foreign ownership of its banks at 40 per cent.
If completed, the DBS-Danamon deal would be the largest in the financial sector so far this year, according to Dealogic.
DBS planned to take full control of Danamon by buying a 67 per cent stake in the bank owned by Temasek, Singapore’s state investment agency, for S$6.2bn.
It was then to buy out the remaining shareholders in a cash offer, bringing the total value of the deal to S$9.1bn. Both transactions mean the deal would be done at 2.6 times Danamon’s book value as of April.
Bank Indonesia, the country’s central bank, said last month that while the 40 per cent cap would apply, the threshold could be relaxed up to 80 per cent if acquiring banks were “financially strong”, with tier one capital ratios of at least 6 per cent. DBS has a tier one capital ratio of 12.8 per cent.
Piyush Gupta, chief executive, said on Friday that the bank would be “submitting a formal application at some stage” to proceed with the next steps in the proposed transaction. He declined to give a timetable.
“We are working very closely with Bank Indonesia to make sure we have a good understanding of the rules and we will be guided by them on submitting a formal application,” Mr Gupta said, as DBS reported record first-half earnings.
Analysts said DBS was likely to be in negotiations about how to structure the deal given that Bank Indonesia had indicated that acquirers would not be able to move to majority ownership immediately.
DBS said when it announced the deal that Indonesia’s banking sector was “highly attractive” given its “demographics, strong macroeconomics and fast-growing economy”. Danamon is Indonesia’s fifth-largest bank with 3,000 branches and about 6m customers.
Indonesia’s economy has since slowed in line with other southeast Asian economies, as a faltering US economy and the eurozone crisis dent growth in the region.
Mr Gupta said DBS was maintaining a S$10bn “cash cushion” in light of global economic uncertainty. “We are sitting tight on that because I am just not certain what will come out of the US and European environment,” he said.
The bank reported a 13 per cent rise in net profit to S$1.74bn compared with the first half of 2011. Its shares closed 0.5 per cent higher at S$14.75.