Aug 01, 2013

    DBS drops Danamon takeover bid

    DBS Group Holdings said it would not pursue a US$7.2-billion (S$9.2-billion) takeover of Indonesia's PT Bank Danamon, a deal that had been stuck in limbo after regulators threw a spanner in the works.

    Indonesia's central bank has put a 40 per cent cap on foreign ownership of its banks, making it difficult for DBS, South-east Asia's biggest lender, to integrate Danamon with its existing business in Indonesia.

    DBS, due to report quarterly results today, said late yesterday that it would allow the takeover agreement to lapse after today.

    In June, DBS extended its agreement for two months with Fullerton Financial Holdings - a unit of Singapore's Temasek Holdings - to buy 67.4 per cent in Danamon after Indonesia's central bank approved the deal, but capped the DBS stake at 40 per cent.

    The market had expected DBS to extend the agreement further, but some analysts said current market conditions in Indonesia might have forced DBS to take a harder look at the deal.

    "Things have changed a lot in Indonesia over the past few months, in terms of the liquidity environment tightening, along with the rupiah declining by about 11 per cent since the announcement was made, so the economics of the deal have become much worse," said Mr Matthew Smith, an analyst at Macquarie Capital Securities in Singapore, who has a "neutral" rating on DBS.

    DBS Group chief executive Piyush Gupta said the bank was positive on Indonesia's long-term potential and would still expand its Indonesian franchise, while remaining open to opportunities.

    The Danamon deal had been seen as part of his push to diversify the earnings base away from Singapore and Hong Kong, which contribute 80 per cent of profits.

    "They will look for a pretty decent-sized bank, financial company or some financial operation in their regional footprint that is for sale," said Mr James Antos, an analyst at Mizuho Securities Asia in Hong Kong.