By Saeed Azhar and Kevin Lim
SINGAPORE (Reuters) - DBS Group Holdings
The deal, Asia's fourth-largest banking takeover, would make Singapore-based DBS the fifth largest lender in Indonesia, one of the region's hottest markets where bank penetration is relatively low and annual loan growth is running at 20 percent.
"What this deal does for us is changing DBS from being 11 percent in high-growth markets to 33 percent exposure to high-growth markets," Chief Executive Piyush Gupta told a briefing in Jakarta on Monday, noting that DBS was perceived as a low-margin, mature-market bank.
But the price - S$6.2 billion ($4.93 billion) in shares and the rest in cash - surprised some investors. DBS is also buying most of Danamon from Singapore state investor Temasek Holdings
"DBS has to explain and illustrate the synergistic value it will gain for paying such a premium," said Roger Tan, CEO of SIAS Research, the research arm of the Securities Investors Association of Singapore.
"Though this step will take DBS one more step further in building a regional bank, they will have to show that their strategy is adding value to shareholders."
Though the offer, worth 7,000 rupiah ($0.77) per Danamon share, looked steep on a premium basis, it looked less generous using another valuation yardstick: at 2.6 times book value, the deal was below some other big banking takeovers in Indonesia.
DBS also signaled on Monday it wanted to expand as well in Malaysia, saying it had received approval to begin talks to buy an effective 14 percent stake in Alliance Financial Group
The Alliance stake is worth about $270 million.
CEO GUPTA'S FIRST MAJOR DEAL
The acquisitions would be the first major deals by CEO Gupta, who took the helm of the Singapore-based lender in late 2009 and is aiming to expand the bank beyond Singapore and Hong Kong, which account for the bulk of ITS profits.
DBS' track record with acquisitions had been tarnished by its purchase of Hong Kong's Dao Heng Bank more than a decade ago which led to two big writedowns in later years.
Aberdeen Asset Management, which owns DBS shares, said the Danamon move was logical for DBS, though it questioned whether the Indonesian government would have any concerns over the deal.
Indonesia's central bank last year mooted a law to limit bank ownership, putting several deals in the sector on ice, but the country's state deposit agency recently said that policymakers would not implement the regulation.
"It will be interesting to see the reaction of Indonesian authorities," said Hugh Young, who heads Aberdeen's Asian operation.
Eight of Indonesia's top 11 banks by market value are either controlled by foreign banks, business families, private equity firms or wealth funds.
DBS, which wants to become a leading Asia-wide bank, said it would initially pay S$6.2 billion in shares to buy a 67.37 percent stake in Danamon from Temasek. It would then buy out Danamon's minority investors for cash.
DBS said it would issue 439 million new shares at S$14.07 each to Fullerton Financial Holdings, the Temasek unit that holds the stake in Danamon. Temasek already owns about 29 percent of DBS and its stake would rise to about 40 percent.
Tow Heng Tan, a board member of Fullerton Financial Holdings, said it had obtained regulatory waiver from having to make a general offer for remaining DBS shares.
DBS said its offer gave Danamon an implied price-to-book of 2.6 times as of December 2011, below the 4.2 times paid by HSBC
DBS CEO Gupta, 52, has spent a large part of his career in India and Southeast Asia - areas where DBS is keen to grow - but he could be tested in Indonesia where the government recently moved without notice against foreign control of local mines.
DBS had record net profit of more than S$3 billion ($2.39 billion) last year.
Credit Suisse
Temasek is being advised by Bank of America-Merrill Lynch and UBS
(Additional reporting by Neil Chatterjee in JAKARTA; Editing by John O'Callaghan and Mark Bendeich)
