Stuck in the swamp
By Paul Mackintosh - 05/08/13
Southeast Asia's largest prospective bank takeover ever, and the biggest private equity exit in the sub-region, lapsed earlier this week when Singapore's DBS declared that it was no longer ready to pursue its US$7.1 billion bid to acquire a majority stake in Indonesia's Bank Danamon, particularly the 67% stake held by its own parent, Singapore SWF Temasek Holdings. The deal was conditional on the Indonesian banking regulator, Bank Indonesia, granting DBS a waiver on the recently-introduced 40% foreign ownership cap on Indonesia's banks. Bank Indonesia itself made such a waiver conditional on Singapore's regulator, the Monetary Authority of Singapore, opening the Lion City's banking market to Indonesian lenders. With no sufficient concessions from the MAS in sight, DBS walked away from the deal without its waiver.
Some commentators have warned that private equity firms and other potential investors in Indonesian banks may be deterred from Southeast Asia's largest economy because of the ownership cap. This ignores the fact that Asian investors and SWFs, including Temasek itself, have been happy acquirers and owners of minority bank stakes across the region, and that one institution, Japan's Sumitomo Mitsui Financial Group, recently agreed to pay $1.5 billion to buy up to 40% of Bank Tabungan Pensiunan Nasional. There is likely still plenty of appetite to buy and sell Indonesian banking minority stakes, which in any case are more within the realistic target size for private equity investors. There also seems to be little anxiety over the long-term prospects for Indonesia's banking sector, despite other claims that DBS took another look at the deal amid a worsening market situation. DBS itself is recording excellent numbers from its Indonesian arm, and looks likely to continue to grow there – albeit more slowly. The prospects for future banking deals in Indonesia, though not on such a huge scale, appear similarly positive.
No, the real cause for concern is Singapore itself. Would Bank Indonesia have been able to make such a direct correlation between regulatory approval of the deal and reciprocal access to Singapore's banking market if Temasek had not been the majority owner of Bank Danamon, and the ultimate owner of DBS? With Temasek and the MAS both pillars of Singapore Inc., it was all too easy to draw the connection. Singapore's corporate champions are being blocked from growing beyond its own shores because they seem unable to put clear blue water between themselves and their origin, and Singapore itself has once again failed to outgrow its past.