DBS' bid for Danamon won't be jeopardised by new ownership cap: CIMB

Indonesia's exemption guidelines spell a higher chance of a DBS-Danamon M&A.

According to CIMB: Bank Indonesia has announced a 3-tier cap for the foreign ownership of Indonesian banks. There appears to be scope for higher ownership if an acquiring bank is deemed healthy. DBS’s Danamon acquisition bid should not be jeopardised by the new rules.

Here's more from CIMB:

Based on BI’s guidelines, we think DBS will apply for an exemption from the ownership cap. We are reviewing our sector calls. For now, we maintain our Outperform on DBS, forecasts and GGM-based target price.

What Happened
Indonesia’s central bank, Bank Indonesia (BI), issued bank-ownership rules last night. The new rules set a 3-tier cap for majority stakes in Indonesian banks. The cap for financial institutions is 40%; for non-financial institutions 30%; and for individuals 20%. While they will not apply to previous deals, existing shareholders may be required to pare down their stakes if the acquired banks fail to maintain good corporate-governance ratings by 31 Dec 13. New shareholders may be allowed to own more than 40% if they are able to meet BI’s guidelines.

What We Think
The regulations appear to lean in favour of DBS. We think DBS should be able to meet BI’s exemption guidelines fairly easily, which spells a higher chance of a DBS-Danamon M&A. A slight drawback is that it will take DBS more than a year to acquire a majority stake in Danamon, as case-by-case exemptions will includethree assessments of the target local bank, which are held twice a year. Danamon was never meant to be a near-term positive, so a delay does not detract from its longer-term value proposition.