Japan’s MUFG hopeful of regulator nod to gain control of PT Bank Danamon

Photo: Reuters

Japan’s Mitsubishi UFJ Financial Group (MUFG) said it was cautiously optimistic of winning approval to take control of PT Bank Danamon Indonesia – in what could become the biggest acquisition of an Indonesian firm on record.

A successful transaction would also mark a rare major deal by an overseas lender in Indonesia’s banking sector after caps on foreign ownership were introduced in 2012 and give hope to other foreign banks keen to expand in Southeast Asia’s biggest economy.

MUFG announced on Tuesday it had agreed with Temasek Holdings, Singapore’s state investment arm, to buy 73.8 percent of Indonesia’s fifth-largest bank in three stages, adding that eventually it wants to make it wholly owned.

But it will need Indonesia’s financial services regulator OJK to grant special permission to take its holding beyond 40 percent – where foreign ownership of commercial banks is normally capped though exceptions are sometimes made.

The first part of the Danamon acquisition – a purchase of a 19.9 percent stake worth $1.2 billion and which values the bank at about $6 billion – is due to be completed within days.

By comparison, the biggest deal to date involving an Indonesian firm is Philip Morris’ $3 billion acquisition of a 60 percent stake in HM Sampoerna in 2005, according to Thomson Reuters data.

“The deal could spur further consolidation in the industry. Regulatory approvals are still a major question, but there is a high chance for the deal to proceed,” said Alexander Margaronis, analyst at UOB Kay Hian in Jakarta.

Takayoshi Futae, MUFG’s chief executive for Asia and Oceania, told a news conference that the Japanese bank was in continuous discussions with OJK and was “cautiously optimistic” it would be granted approval to take its holding beyond 40 percent.

Danamon‘s shares jumped 14 percent on Wednesday to 6,825 rupiah per share although that was still below the 8,323 rupiah per share agreed with Temasek.

The deal would allow MUFG to expand further in Southeast Asia where banking penetration is low and growth rates are far more attractive than its saturated home market.

Danamon‘s lending margin is 9.2 percent, which is more than 10 times higher than the average lending margin in Japan,” said Yoshinobu Yamada, senior analyst at Deutsche Securities.

“Also Indonesia and Thailand have a large number of Japanese companies, which is why Japanese banks are targeting these markets,” he added.

The second phase of the acquisition – a purchase of 20.1 percent stake – is expected to be completed in the second or third quarter of 2018, MUFG said.

OJK has previously granted an exception to the 40 percent rule as part of efforts to promote consolidation among Indonesia’s 100-plus banks. In 2015 it allowed China Construction Bank Corp to take control of PT Bank Windu Kentjana International which then merged with another small domestic bank.

Japan’s No. 2 bank, Sumitomo Mitsui Financial Group (SMFG) , also said this week it is keen to raise its stake to a majority in Indonesian lender BTPN if authorities permit.

Reuters

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.