DBS and Temasek set to extend Danamon deal

DBS and Temasek set to extend Danamon deal

SINGAPORE - DBS Bank is ready to kick life back into its seemingly stalled bid to buy Indonesia's Bank Danamon, according to reports on Friday.

The bank is set to extend its agreement with Temasek Holdings to buy the latter's controlling stake in Danamon for another two months, according to Reuters.

That agreement was due to end tomorrow but many now expect DBS to announce on Monday that it has been extended.

An extension would give DBS another shot at securing a majority stake in Danamon, after Indonesia's central bank last week capped its maximum holding at 40 per cent.

Many analysts think DBS would rather walk away from the deal than complete it at 40 per cent.

A 40 per cent stake in Danamon, Indonesia's sixth-biggest bank, is worth about US$2.7 billion (S$3.4 billion).

This would be the second time DBS is extending its Danamon deal with Temasek, which owns 29 per cent of DBS.

DBS, which is South-east Asia's biggest lender, said in April last year that it would buy Temasek's 67.4 per cent stake in Danamon for $6.2 billion in shares.

If DBS was allowed to buy 99 per cent of Danamon, those shares would lift Temasek's DBS stake to 40 per cent.

The plan then was for DBS to make a general offer for the rest of the Danamon shares. That would cost $2.9 billion in cash, valuing Danamon at $9.1 billion in total.

The original deadline for completion of the acquisition was April 2, but DBS extended it to June 2.

That allowed time for Indonesian central bankers to assess the deal according to the country's foreign ownership regulations.

Its eventual ruling capped DBS' proposed ownership of Danamon at 40 per cent although it left the door open for that level to be raised, but only if Indonesian banks get better access to Singapore.

Indonesia's central bank last June capped ownership of an Indonesian bank by any single financial institution at 40 per cent.

Ownership above 40 per cent is subject to scrutiny by Bank Indonesia on the soundness and performance of the banking unit and its parent company over at least 18 months.

Bank Indonesia's former governor, Mr Darmin Nasution, said on May 21 that if DBS wants a higher stake, Bank Indonesia will need to see concrete steps taken by the Monetary Authority of Singapore (MAS) regarding reciprocity in terms of access for Indonesian banks to Singapore.

The MAS responded on the same day, saying that it is in talks with Bank Indonesia about increasing bank access to each other's markets.

"In the case of Indonesian banks in Singapore, this will be by way of a broader provision of financial services, both in wholesale banking and to, for example, Indonesian students and work permit holders in Singapore," the MAS said.

Analysts said earlier this week that holding a minority stake in Danamon would not make sense for DBS and the bank might walk away if it is not allowed to acquire a majority share.

DBS chief financial officer Chng Sok Hui said earlier this year at its first-quarter results briefing that holding minority stakes can be quite punitive, as Basel III rules require banks to deduct the value of minority investments from Tier 1 capital.

DBS could not be reached for comment.

Reuters said yesterday that spokesmen for DBS and Fullerton Financial Holdings, a Temasek unit, declined to comment.

DBS shares closed 19 cents higher at $17.16 on Friday.

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