DBS to Hold Off on Acquisitions After Danamon, CEO Says

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

DBS Group Holdings Ltd. will hold off on making acquisitions for the next one to two years following its $7.2 billion offer for PT Bank Danamon Indonesia, Chief Executive Officer Piyush Gupta said.

DBS made the bid on April 2 for what would be the biggest takeover by a Southeast Asian lender as the bank seeks to tap a market growing at the fastest pace since before the 1997 Asian crisis. The acquisition will give the Singapore-based bank a 3,000-branch network in Indonesia.

“We do these things step by step and it will take us some time to actually integrate and get the value we want from Danamon, so we will not be in the market looking for other opportunities,” Gupta said in a Bloomberg Television interview aired today.

DBS expects its earnings per share to rebound from the third year of the Danamon acquisition after declining in the first two years as it merges its operations with those of the Indonesian lender. The purchase would allow DBS to diversify into an economy that’s three times the size of its home market and reduce its dependence on Singapore.

The acquisition also fills a void in the bank’s “three axis of growth” that include North, South and Southeast Asia, Gupta said in the interview recorded on April 27 in Singapore.

DBS said in a slide presentation on April 2 that its 2011 revenue from South and Southeast Asia would have surged to 27 percent from 7 percent with Danamon, while its reliance on Singapore would decline to 49 percent from 62 percent. The regional data excludes figures from the city-state.

‘Relatively Light’

“We’re relatively light in Southeast,” Gupta said. “If we can bulk up the Southeast Asian portion of our portfolio, it will give us a more balanced book of businesses and more exposure, presence in growth markets.”

DBS dropped 0.3 percent to S$13.96 at the close in Singapore, paring an earlier 1.1 percent decline. The Singapore benchmark Straits Times Index also lost 0.3 percent. Danamon retreated 5.1 percent to 5,600 rupiah, the lowest since March 30, before the DBS bid was announced.

The Danamon purchase may face headwinds in Indonesia as the country’s central bank said last week the bid won’t be approved until it sets new ownership rules for financial institutions and agrees with Singapore on reciprocity in treatment of lenders. The new ownership rules will be finished by June, Bank Indonesia Governor Darmin Nasution said in Jakarta on April 27.

‘Not a Priority’

Macquarie Group Ltd. said in a report today that the Indonesian central bank may be seeking reciprocity from its Singapore counterpart to “accommodate” the complaints from local lenders expanding abroad.

“We believe reciprocity was not a priority for Bank Indonesia and should not be an absolute requirement in order for DBS to proceed with takeover of Danamon,” Nicolaos Oentung and Dewi Kusuma, analysts at Macquarie in Jakarta, said in the report. “We view the fact that BI is setting a deadline for issuing the bank ownership regulation as positive for the DBS-Danamon takeover.”

Singapore Exchange Securities Trading Ltd. has given in-principle approval for listing 439 million new shares on the local exchange as part of the transaction, DBS said on April 28.

DBS said last week its first-quarter profit climbed 16 percent to a record on higher income from interest and trading. Net income advanced to S$933 million ($751 million) in the three months ended March 31 from S$807 million a year earlier, exceeding the S$755.2 million average of six analysts’ estimates compiled by Bloomberg.

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