Singapore - Investors concerned over DBS' new acquisition

SINGAPORE: Investors are still unconvinced DBS' new acquisition, Bank Danamon, will deliver increased value for the company.

Politics may yet scupper the deal, and two days of decline in DBS shares are testament to the difficulty it may have in absorbing the Indonesian lender.

It is DBS' biggest shopping item so far - Indonesia's Bank Danamon.

For S$9.1 billion, DBS becomes the country's fifth biggest lender with a customer base of six million.

An added allure is Indonesia's 25 per cent annual loans growth and Danamon's expertise in small-business lending.

Jonathan Koh, associate director, UOB Kay Hian Research, said: "Microfinancing, I think, is pretty unique to a large economy like Indonesia. The margin there is very attractive, the lending rate could be as high as 24 per cent."

However, two days of decline in DBS stocks is a sign of investor concern about new banking laws and opposition to the deal in parliament and at the central bank.

Cyrus Daruwala, managing director, Asia Pacific, IDC Financial Insights, said: "What if Bank Indonesia comes back and says, 'Well according to the new foreign ownership laws, you are not permitted to buy 99 per cent'. Then, we are back to square one."

Some analysts said the payback period for the investment may be longer than DBS' stated three years.

There is also concern that DBS will be hard pressed to find synergies with Danamon.

There is, however, certainty that DBS has entered a new phase in its regionalisation.

"DBS' competition really is not OCBC and UOB. DBS' competition now is Maybank, (and) CIMB. The way (CIMB)is ramping up... I think they'll give DBS a run for their money," said Mr Daruwala.

From a ratings perspective, Moody's has put DBS on watch for a downgrade, while S&P said Danamon's may improve.

Ritesh Maheshwari, MD, Asia Pacific, Financial Services Ratings, Standard & Poor's, said: "Bank Danamon's ratings are very close to the sovereign rating right now, but one notch below because it was not enjoying any support. If that acquisition fully goes through and a 100 per cent acquistion takes place, over a time period, we'll see the rating go up."

- CNA/cc

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