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DBS Must Sell Danamon Shares on Refloat Rule, Bourse Says

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DBS Group Holdings Ltd. CEO Piyush Gupta
Piyush Gupta, chief executive officer of DBS Group Holdings Ltd. Photographer: Munshi Ahmed/Bloomberg

April 10 (Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia’s largest bank, must sell shares of PT Bank Danamon Indonesia back to the public if it owns more than 80 percent of the lender after a takeover, according to the Indonesian bourse.

DBS offered to buy Jakarta-based Danamon for about $7.2 billion on April 2 in the biggest takeover by a lender in the region. Indonesia’s exchange rules require investors buying a listed company through a tender offer to pare their stakes down to no more than 80 percent, according to the Indonesian capital market supervisory agency.

The shares, if sold in a block, would amount to about $1.4 billion based on DBS’s bid price, exceeding any stock sale in Indonesia, according to data compiled by Bloomberg. DBS, which has two years from the close of the offer to pare down its stake, said in an e-mailed response to queries late yesterday it could “spread” the share sale over that time.

“Two years down the road, we expect Danamon to be showing synergies with DBS, based on DBS’s own timeline,” said Anand Pathmakanthan, an analyst at Nomura Singapore Ltd. who rates DBS a buy. The share sale is “not a pressing issue,” he said.

The rule is aimed at maintaining liquidity in the market by allowing stock investors to still own shares of publicly traded companies after an acquisition, Nurhaida, head of the capital market supervisory agency, said in a mobile-phone text message today. Under Indonesian law, DBS is allowed to buy as much as 99 percent of a local bank, which means it would have to sell back as much as 19 percent of Danamon to the public.

Maybank, Bank Internasional

Pathmakanthan said the Singapore bank could also seek an extension after two years similar to Malayan Banking Bhd.’s purchase of PT Bank Internasional Indonesia in 2008. The Indonesian regulator agreed to extend the two-year timeframe if losses exceeded 10 percent of the investment.

DBS said last week it will pay Singapore’s Temasek Holdings Pte, its biggest stakeholder, 45.2 trillion rupiah ($4.9 billion) in new shares for its 67 percent stake and buy the remaining stock from other shareholders for 21.2 trillion rupiah in cash. The cash offer, at 7,000 rupiah a share, is at a 52 percent premium from Danamon’s 4,600 rupiah close on March 30.

“A lot of investors will likely want to sell their shares to DBS because of the premium,” said Syaiful Adrian, a banking analyst at Jakarta-based PT Ciptadana Securities, who’s advising his clients to join the tender offer. Over the next two years “banking shares outlook should remain good with lending growth that’s driven by investment and consumer credit,” he said.

Danamon Shares Fall

Danamon shares declined 2.3 percent to 6,300 rupiah at the close in Jakarta, the first decline since the DBS bid was announced. Shares of the Singapore bank lost 0.1 percent to S$13.26, the lowest since Jan. 25.

DBS should comply with the rule of holding no more than 80 percent of Danamon, Eddy Sugito, listing director at the Indonesia Stock Exchange, said in a mobile-phone text message yesterday.

“We intend to keep the listing” of Danamon, Edna Koh, a Singapore-based spokeswoman at DBS, said yesterday. She also referred to a DBS filing with the Singapore stock exchange last week, which said the lender will have to ensure it holds no more than 80 percent of Danamon shares within two years of the acquisition, unless it gets a waiver or extension from Indonesian authorities.

Economic Growth

Acquiring Indonesia’s sixth-largest bank by assets will help DBS branch out from Singapore and Hong Kong to tap an economy that grew last year at the fastest pace since before the Asian financial crisis. Trade and infrastructure finance as well as corporate and retail banking are among the promising areas in Indonesia, Southeast Asia’s biggest economy, Piyush Gupta, chief executive officer of the Singapore-based bank, said last week.

The takeover may be delayed as Indonesian regulators could use DBS’s bid to get reciprocal access to Singapore’s banking market, the Straits Times reported on April 6. Difi Johansyah, a spokesman for the central bank, said in a mobile-phone text message yesterday that the takeover isn’t a problem as long as it strengthens Danamon, declining to comment on reciprocity.

The Monetary Authority of Singapore, the city’s central bank, said in an e-mailed response to queries that four Indonesian banks have operations in the city-state, adding that “all foreign banks are free to expand their activities in Singapore subject to the guidelines specific to the license under which they operate.”

For DBS, the acquisition gives it access to Danamon’s 3,000-branch network that serves 6 million customers. The Indonesian economy grew 6.46 percent last year, a pace unseen since before the Asian crisis in 1997, and is forecast to grow 6.5 percent this year.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: James Gunsalus at jgunsalus@bloomberg.net

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