DBS (Development Bank of Singapore)

its always worrying whenever DBS makes a large acquisition...
i am vested and worried.

DBS to pay S$9.1 billion for stake in Bank Danamon
Updated 10:23 AM Apr 02, 2012
SINGAPORE - DBS Group Holdings, Southeast Asia's biggest bank, has agreed to pay S$9.1 billion for Indonesia's Bank Danamon in shares and cash, stumping up a premium of around 52 per cent to become the country's fifth-biggest lender.

Singapore-based DBS, which is making the move as part of its goal to become a leading Asia-wide bank, said today it would initially pay S$6.2 billion in shares to buy a 67.37 per cent stake from Singapore state investor Temasek Holdings.

It would then buy out Danamon's minority investors for cash, with both the share and cash payments pitched at 7,000 rupiah (S$0.95) per Danamon share.

DBS said it would issue 439 million new shares to Temasek at S$14.07 each. The state investor already owns about 29 per cent of DBS.

When combined with DBS' existing Indonesian assets, the acquisition would make DBS the country's fifth-largest lender.

In the same statement, DBS said Malaysia's central bank had allowed it to begin talks with a unit of Temasek to buy an effective 14 per cent stake in Alliance Financial Group.

These acquisitions would be the first major deals by DBS chief executive Piyush Gupta, who took the helm of the Singapore-based lender in late 2009.

The biggest challenge will be persuading investors that DBS has not overpaid, as it did when it bought Hong Kong's Dao Heng Bank more than a decade ago.

Mr Gupta, 52, has spent a large part of his career in India and Southeast Asia - areas where DBS is keen to grow - but he will be tested in Indonesia where rules on foreign bank ownership change frequently.

DBS had record net profit of more than S$3 billion last year.

Credit Suisse and Morgan Stanley are DBS's joint financial advisers, while WongPartnership LLP and Hadiputranto, Hadinoto & Partners are legal advisers. REUTERS

Ya lol!
It's like daughter selling/buying to mother or son selling/buying to father. After selling/buying, father increases so much more share holding of daughter's. So what happens to retailer's share holdings? Diluted or what?

Temperament Wrote:So what happens to retailer's share holdings? Diluted or what?

The announcement clearly states that DBS will issue new shares to Temasek for the latter's stake in Danamon, and that Temasek's stake in DBS will rise from 29% to over 40%. So minority shareholders will go from 71% to under 60%, a dilution of 14-15%.

1. Buy at 2.6X P/B?

2. Pay at so much premium to the father?

It looks like a repeat of the case... what the father say, the son stomach...

Which bank is priced at 2.6X price to book now??

I was invested with DBS during my earlier investing days for as long as 11 years until I gave them up many years ago. With DBS you can expect they screw things up with regularity. Let me list them:

1. their purchase of thai thanu bank at way before the afc goes into full steam. nearly bankrupt them and govt have to gave them posb to survive.
2. purchase of dao heng bank at 3.8x p/b. so 2.6x is still cheap in comparison.
3. trying to act smart in their hostile takeover of oub. got eggs all over their face and uob just walk in cooly and took over oub
4. major screw up in their hk safety deposit box fiasco
5. recent card scheming case.

not sure if i have miss out any....danamon of course.

(03-04-2012, 12:25 PM)d.o.g. Wrote:

Temperament Wrote:So what happens to retailer's share holdings? Diluted or what?

The announcement clearly states that DBS will issue new shares to Temasek for the latter's stake in Danamon, and that Temasek's stake in DBS will rise from 29% to over 40%. So minority shareholders will go from 71% to under 60%, a dilution of 14-15%.

Thanks anyway. i just knew it even if i "failed" my maths.

My 2 cents.

Effectively, DBS is offering a stock at P/E about 11x, for a stock at P/E about 18x and 2.6x book value. It certainly looks like a premium is paid.

On a positive note, a cursory check reveals that Danamon has ROE of 15.5%+ and ROA of 2.6%+, versus DBS ROE of 10% and ROA of 1%. Plus, Danamon has been growing net income in past 3 years at a CAGR of 30%. Indonesia's economy is probably gonna grow the fastest in SE Asia at 7%+, has a large population, a growing middle class and increasing investment in infrastructure. These seems to support growing the business in Indonesia.

The deal also reduces DBS's reliance on Singapore market to 49% of revenue, offering some form of geographical diversification. The question is whether any synergies and economies of scale can be realised.

There are certainly positives and negatives in the deal. Only time will tell.

Vested.

Well, this is not a done deal so minority shareholders can still vote against this acquisition right?

(03-04-2012, 05:49 PM)Coattails Wrote: My 2 cents.

Effectively, DBS is offering a stock at P/E about 11x, for a stock at P/E about 18x and 2.6x book value. It certainly looks like a premium is paid.

On a positive note, a cursory check reveals that Danamon has ROE of 15.5%+ and ROA of 2.6%+, versus DBS ROE of 10% and ROA of 1%. Plus, Danamon has been growing net income in past 3 years at a CAGR of 30%. Indonesia's economy is probably gonna grow the fastest in SE Asia at 7%+, has a large population, a growing middle class and increasing investment in infrastructure. These seems to support growing the business in Indonesia.

The deal also reduces DBS's reliance on Singapore market to 49% of revenue, offering some form of geographical diversification. The question is whether any synergies and economies of scale can be realised.

There are certainly positives and negatives in the deal. Only time will tell.

Vested.

With such impressive ROA of 2.6%,it might be that DBS is finally doing something right.

While indonesia is expected to be one of the fastest growing especially its financial sector after the country got a re-rating, the banking industry there still hold some risk.

Firstly, it is an extremely fragmented market over there with quite a number of regional bank competiting there. It has 4 state-owned banks which holds only one-third of the total market share. CIMB Niaga also has a very strong presence there(used to be the number 5) and not only are they expanding they are also trying to list in the indonesian exchange. OCBC, Maybank, UOB also have significant presence there. As such it is a rather competitive market though its huge population and undeveloped sector will mitigate the risk.

Secondly, indonesia is a huge piece of land as compared to Singapore while its population is only 50 times of ours. What this mean is that, the number of customers to branches will be a lot lower than Singapore.

at the end of the day, I feel that the greatest risk still lies in themselves. DBS's history is just too spectacular, don't forget that POSB was a wonderful bank at that point in time.

CIMB Niaga is already listed in Indonesian exchange under the ticker BNGA. CIMB group acquired Bank Niaga and then merged with Lippo Bank to become CIMB Niaga.