DBS

DBS: Mizuho Securities questions if would DBS have another chance to buy control of Bank Danamon? The Chairman of the newly established Indonesian Financial Services Authority (or OJK) recently indicated that the agency might be willing to review the issues surrounding DBS’ aborted bid to acquire control of Bank Danamon, Indonesia’s 5th largest bank. Recall, in Apr’’12 DBS offered to buy up to 99% of Danamon’s shares in a deal that would have been worth US$7.2b. In Jul12 Indonesian authorities capped the foreign ownership limit for the banking sector at 40%. In May13, unable to negotiate for an exception to the foreign ownership rule, DBS pulled out of the deal. Danamon generated pre-tax profits equivalent to 13% of DBS group profits for 9m13. Danamon’s ROE stands at 14.5% for the 9m on a Tier 1 ratio of 17.8%. In comparison, DBS reported ROE at 10.9% and Tier 1 at 13.3%. The financial impact on the group of a successful bid for control of Danamon would be substantial in our opinion. The Financial Services Authority will take over supervision of the banking sector in Jan’14. The Chairman was recently asked about the DBS offer for Bank Danamon. He indicated that it may be possible for the OJK to review the circumstances around the failed bid. Overall, the house thinks that a compromise could be reached and the price could be 23% lower in SGD terms. The OJK Chairman’s statement clearly opens the door to a new deal for Danamon. If a deal is agreed at the IDR7,000/share that was offered in 2012, this will represent a 23% discount in SGD terms, due to the significant depreciation of IDR since April last year.