Singapore's DBS Group Holdings on Monday announced plans to buy Indonesia's PT Bank Danamon for Sg$9.1 billion ($7.3 billion) to ramp up its business in Southeast Asia's biggest economy.
DBS will pay Sg$6.2 billion for the 67.37 percent stake held by a subsidiary of Singapore's state investment firm Temasek Holdings' Fullerton Financial Holdings and will finance the purchase through the issuance of new stock.
DBS will also launch a cash offer of Sg$2.9 billion for the rest of the shares in the Indonesian bank, which will be financed from internal cash resources and future debt issuances, DBS said in a statement.
Temasek will not be totally out of the picture after the share sale -- it currently has a 29.5 percent stake in DBS and this will rise to slightly above 40 percent after the deal is completed, a DBS spokeswoman told AFP.
"Indonesia is an exciting Asian market and we believe that we will be able to contribute towards the growth of the Indonesian banking sector," DBS chief executive Piyush Gupta said in the statement.
"Danamon is a highly attractive franchise with an established platform, market leading positions and a very capable management team.... With Danamon, we will be able to significantly diversify our revenue mix and further consolidate our position (in Asia)," he added.
DBS, the biggest bank in Southeast Asia by assets, in February reported net profit for 2011 rose an annual 15 percent to a record Sg$3.04 billion as income hit a record high of Sg$7.63 billion.
The bank has been looking to grow its Asian business in recent years and the proposed acquisition of Danamon is its biggest deal in recent years.
DBS said the latest purchase, which it expects to complete in the second half of this year, will immediately propel Danamon to be the fifth largest in Indonesia.
"This is a significant milestone for DBS and demonstrates our confidence in Indonesia and long-term commitment to this market," said DBS chairman Peter Seah.
"Indonesia's economic resilience, reflected by its recent ratings upgrade to investment grade, creates a positive operating environment for us."
Danamon, a full service commercial bank, has about 3,000 branches and outlets with a customer base of six million in the country, DBS said.
According to DBS, it will issue 439 million new shares at an issue price of Sg$14.07 each to pay for Temasek Holdings' 67.37 percent stake.
The Singapore bank also said its Sg$2.9-billion cash offer for the remaining PT Bank Danamon stock is the equivalent of 7,000 Indonesian rupiah per share to minority shareholders.
It represents a 56.3 percent premium over the Indonesian bank's one-month volume weighted average price of 4,480 Indonesian rupiah per share.
"Indonesia is a fast-growing market with one of the world's biggest populations," Justin Harper, market strategist with IG Markets Singapore, told AFP.
"As personal wealth and household incomes grow, so too will their need for banking services.
"It is a key country within Southeast Asia for DBS to expand into given these attributes."
Harper added: "As for paying a fair price, difficult to say at this stage... But I think Gupta is a shrewd CEO who has done his calculations well and will be keen not to overpay for Danamon."