DBS Extends Deadline for Takeover of Temasek"s Bank Danamon

DBS Group Holdings Ltd. (DBS), Southeast

Asia’s biggest bank, agreed to extend a deadline for buying a

controlling stake in PT Bank Danamon Indonesia (BDMN) 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.

To contact the reporters on this story:

Sanat Vallikappen in Singapore at

vallikappen@bloomberg.net;

Joyce Koh in Singapore at

jkoh38@bloomberg.net

To contact the editor responsible for this story:

Chitra Somayaji at

csomayaji@bloomberg.net

DBS Extends Deadline for Takeover of Temasek"s Bank Danamon