DBS Extends Deadline for Takeover of Temasek’s Bank Danamon

DBS Group Holdings Ltd., Southeast Asia’s biggest bank, agreed to extend a deadline for buying a controlling stake in PT Bank Danamon Indonesia from Temasek Holdings Pte amid regulatory wrangling.

The agreement with Temasek’s Fullerton Financial Holdings Pte, which expired yesterday, will be prolonged to Aug. 1, Singapore-based DBS said in a statement today. The deal will lapse unless both parties agree to a further extension, it said.

Indonesia’s former central bank Governor Darmin Nasution said last month that DBS will be allowed to take 40 percent of Danamon, in accordance with bank ownership rules set after the 66.4 trillion-rupiah ($6.8 billion) takeover bid was made in April last year. A minority stake would deny DBS management control as it seeks a foothold in a country where loans are the most profitable among the world’s 20 largest economies.

It was the second time DBS pushed back the deadline for completing a deal. Indonesia’s regulator is leveraging the transaction to gain equal access in Singapore for its banks, possibly thwarting what would be Southeast Asia’s largest bank acquisition.

Indonesia’s central bank welcomes the extension, Bank Indonesia Deputy Governor Halim Alamsyah told reporters in Singapore today. Indonesian officials “are still talking” with the Monetary Authority of Singapore, Alamsyah said.

“I think we have the agreement,” he said. “We will wait for the response from the MAS.”

Ownership Laws

While a minority stake in Danamon would cut DBS’s reliance on Singapore, Southeast Asia’s least profitable loan market, Indonesian bank ownership laws unveiled last July can bar the bank from achieving its original plan to gain full control. The new rules allow ownership by another lender to rise above 40 percent only if certain conditions, including capital strength requirements, are met.

“DBS will make further announcements when there are significant developments on the transaction,” it said in today’s statement.

Karen Ngui, a spokeswoman for DBS, said following Nasution’s announcement on May 21 that the lender hadn’t received written notice of the approval and it “hopes” the application will be approved as originally submitted.

Share Swap

The takeover agreement calls for DBS to acquire Temasek’s 67.4 percent stake in Danamon by allowing Singapore’s state-owned investment company to swap its Danamon holdings into DBS shares. The swap was agreed to at a price of 7,000 rupiah for each Danamon share, which called for DBS to issue 439 million new shares to Temasek at S$14.07 apiece. That will increase its stake in DBS to 40.4 percent from 29.5 percent.

Following that transaction, DBS would make a tender offer for any remaining Danamon stock for 7,000 rupiah a share, taking its holding in the Indonesian bank to 99 percent.

Danamon shares fell 2.6 percent to 5,600 rupiah at 11:02 a.m. in Jakarta. DBS declined 1.6 percent to S$16.88 in Singapore.

International rules known as Basel III that require banks to deduct the value of minority investments from Tier 1 capital make such deals “quite punitive,” DBS Chief Financial Officer Chng Sok Hui said on May 2.

DBS is “very reluctant” to buy minority stakes, Chief Executive Officer Piyush Gupta said that day, after the bank reported earnings for the three months to March 31.

Indonesian lenders are the most profitable among the world’s 20 biggest economies, according to data compiled by Bloomberg. Banks with a market value greater than $5 billion boast an average net interest margin, a measure of lending profitability, of 7.3 percent, according to the data.

In comparison, Singapore’s banks have a net interest margin of 1.82 percent, the narrowest in Southeast Asia, the data show.

Before it's here, it's on the Bloomberg Terminal.