DBS buys majority stake in Bank Danamon Indonesia

SINGAPORE: DBS Group will pay S$9.1 billion to acquire Bank Danamon Indonesia, as the region's biggest lender looks to grow its reach into emerging markets.

The acquisition will make DBS the fifth largest bank in Indonesia.

DBS has made no secret of its ambitions to become Asia's largest bank.

Its decision to take over Indonesia's sixth largest bank by assets has been in the pipeline for more than a year.

Peter Seah, chairman, DBS Group Holdings & DBS Bank, said: "It means that we are going to be a competitor that others will have to take very seriously. With this acquisition, we are definitely going to be much bigger than our two local competitors. And we are moving up in the chain against our other major competitors - the other global banks. We are already a significant player in Asia and this just moves us up further as a player."

DBS will pay Temasek Holdings unit, Fullerton Financial, S$6.2 billion for its 67.4 per cent stake.

And it will offer another S$2.9 billion for the Danamon shares which it doesn't already own.

The deal will be funded through a share swap that will see Temasek increase its stake in DBS from 29.5 per cent to 40.4 per cent.

The bank sought to reassure investors the impact on its balance sheet of the total S$9 billion acquisition will be minimal.

Chng Sok Hui, chief financial officer, DBS Group Holdings & DBS Bank, said: "A dividend cut is very unlikely. As a result of this transaction, we'll be issuing 439 million new DBS shares, and assuming the same payout rate of 56 cents a share, the additional payout is about (over) S$200 million, and that is something within DBS's ability to meet in terms of dividend payment."

The deal could, however, potentially face a hurdle if a plan mooted by Indonesia's central bank to cap foreign ownership of banks at 50 per cent, becomes law.

Alfred Chan, director Financial Institution, Fitch Ratings, said: "It will continue to be a risk for investors investing in Indonesia. What we do see as a potential restriction is that DBS has to maintain a 20 per cent public float on Danamon but despite this, it is still going to get majority control - more than 50 per cent - and this is crucial for DBS to be able to exercise management control and how to run the bank going forward."

DBS said it's confident the deal will pass the scrutiny of Indonesian regulators but with a caveat, it said with Indonesia, there's no absolute guarantee.