DBS (Development Bank of Singapore)

[freedom]

Being in Indonesia always has its political risk. something like the recent new mining rule about foreign investors must sell down their stake to local. The same could well happen to tight-regulated financial industry.

[shanrui_91]

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.

my news is lagging... but what i know is that CIMB seemed to be very fierce in its expansion. going to acquire investment banking from RBS soon. While it is also worth noting that its CEO is Nazir Razak, brother of Najib

[Temperament]

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.

my news is lagging... but what i know is that CIMB seemed to be very fierce in its expansion. going to acquire investment banking from RBS soon. While it is also worth noting that its CEO is Nazir Razak, brother of Najib

i think i have read CIMB already acquired RBS.

[bran]

The merits of the acquisition aside, what i am seething about is the dilution and that they didn't protect the interests of the minority shareholders...

---

Thanks egghead, looks like its not a done deal yet..whats the voting rules like for these? I've never actually gone for an AGM/EGM/any GM


Approvals and Timing
The proposed transaction is subject to receipt of all necessary regulatory approvals, which includes Singapore and Indonesia, and shareholders’ approval in Singapore. The proposed transaction is expected to be completed in the second half of this year.

A tender offer for the remaining shares will be launched upon closing of the acquisition of shares of AFI which in turn holds shares in Danamon.

[axt]

Why do I have this strong feeling that Indonesia govt will reject this transaction?

[Coattails]

As an existing shareholder myself, I share your concern about the dilution of minority shareholders. But, dilution should also be analysed from a valuation point of view.

When it comes to mergers and acquisitions using the acquirer's own stocks as the "currency", it is most beneficial to acquirer shareholders when the acquirer's stock is overvalued while the acquiree's stock is undervalued. An analogy of this would be like using a strong overvalued Singdollar to go Europe and buy LV or Gucci handbags. Conversely, it is most disadvantageous the other way around, i.e. undervalued acquirer stock for overvalued acquiree stock. So what it boils down to is the valuations of both companies.

When we look at valuations, potential earnings power come into consideration. Indonesia has 50% of its population below the age of 30 years old (according to Indonesian government advertisement on TV), a large population, fast growing economy, investments in infrastructure projects, and expanding middle class (important because middle class consumes quite a fair bit relative to income). These demographics are generally favourable to a local commercial bank with a good network of branches and corporate relationships in the country. Danamon is the sixth largest bank in Indonesia and has 6 million customers and 3000 branches, so they are in a sweet spot and have growth net income at a CAGR of more than 30% in the past 3 years. The offered price for Danamon share is Rp 7000, which is about 18.2x P/E. Given the high historical and potential earnings growth rate, I would venture to say that the purchase price is fair.

If we looked at Singapore, our economy has matured, GDP has slowed, exports sector performance is erratic at best and the property sector looks frothy. Plus, the low interest rate environment has squeezed net interest margins for our local banks. I doubt local banks will achieve much loan growth going forward from Singapore alone. 62% of DBS's current revenue is from Singapore and they are looking to diversify more into the region. The new shares to Temasek are issued at S$14.07, which is about 11x P/E. To me, it looks slightly undervalued.

Another angle is to look at synergies. DBS is the largest bank in SE Asia and also ranked as one of the top 10 safest banks in the world, thus their cost of funding and borrowing is relatively lower. Danamon has great growth potential but perhaps a weaker balance sheet, is a regional bank and less renowned globally. Hence they have a funding problem i.e. higher cost of borrowing. The synergy would be to use DBS's financial strength to fund business growth in Indonesia. Furthermore, given the close proximity of the two countries (and that DBS already has a small presence in Indonesia), the two banks could derive operational cost savings in IT infrastructure, corporate services, etc.

In summary, this looks like a transaction that uses a slightly undervalued stock of a mature company to exchange for a fairly valued stock of a company with large earnings growth potential. So I believe it is a good transactions for all parties involved, even the minority shareholders.

Vested.

[bran]

to coattails, thanks for the analysis and the details. I'm not disputing the rationale as they have to eventually play catch up to OCBC and UOB in terms of geographical exposure to the higher growth SEA region. But i think that this benefits temasek more than the minorities....(pls correct my numbers if there are any errors)
A: Net profit (pre purchase): 3035mn
B: No. of shares (pre purchase, fully diluted): 2429mn (from annual report)
EPS (pre-purchase)= A/B = $1.25

C: Combined proforma net profit (according to DBS's presentation): 3360mn
No. of shares issued to temasek/fullerton/whatever: 439mn
D: Total new no. of shares = 2868mn
E: EPS (post-purchase) = C/D = $1.17

EPS went down post-purchase

Another way to consider.
F: Temasek's share of DBS pre-purchase = 29% (approximately)
G: Temasek's share of DBS post-purchase = 40.4% (Straits times reported)
H: Temasek's share of profits pre-purchase= F * A = $880.15mn
minorities share of profits pre-purchase= A -H = 2154mn

I: Temasek's share of profits post-purchase= G * C = $1357.44
minorities share of profits post-purchase= C - I = 2002mn

Our share of profits just went down post purchase. Any benefits will have to come from the "Synergies" of the purchase which DBS has guided that it will only come post 2015

But in any case, temasek benefits proportionately more. Couldn't DBS have made a cash consideration and issued rights, giving us all the opportunity to share in proportionately in the new enlarged entity?

[shanrui_91]

Damanon while being the 6th biggest bank in Indonesia only holds a market share of 4%. This is not surprising given that Mandiri, the largest, has a market share of 13.8%. Will it be able to be in the top 4? Well, only if it can be bigger than the 4 state-owned bank. The current 5th place is CIMB Niaga, another giant to fight with.

banking in indonesia is very fragmented as the entry requirement is very low. and here's a piece of news to ponder about
http://in.reuters.com/article/2012/04/03...7K20120403

[pianist]

seems like this deal has just slaughtered the minority shareholders

[corydorus]

Temesek certainly realized a huge gains and at the same time will expand their hold significantly on DBS.