DBS - Swallowing a Big Indonesian Pie

kimeng

Publish date: Tue, 03 Apr 2012, 09:54 AM

Warrants Highlight

DBS - Swallowing a Big Indonesian Pie

Code	Name	Type	Expiry	Exercise Price
P0VW	DBS MB eCW120702	Call	02-Jul-12	13.90
O9KW	DBS MB eCW130102	Call	02-Jan-13	14.00
P5CW	DBS MB eCW120803	Call	03-Aug-12	15.00
P2NW	DBS MB ePW120718	Put	18-Jul-12	12.80

DBS surprised the markets with a massive acquisition announcement yesterday. It proposed a S$9.1bn deal to take over Indonesian bank, Bank Danamon (BDMN), at Rp7,000 per share (52% premium to closing), :

- S$6.2bn share issuance paid to Temasek for 67% stake
- S$2.9bn cash offer to be made to BDMN 33% minorities

The proposed deal will increase the aggregate shareholdings of Temasek in DBS from approximately 29.5% to 40.4%.

The proposed transaction is subjected to regulatory approvals from both Singapore and Indonesia, and shareholders’ approval in Singapore. DBS management expects the transaction to be completed in 2H12.

About Danamon
Danamon is an Indonesian full service commercial bank, and currently the 6th largest bank by assets in the nation. Danamon has an extensive network of 3,000 branch offices and approximately 6mn customers. The bank has a market leading presence in microfinance and auto lending segments. However, the bank has been facing issues of weak funding base, high Loan-to-Deposit Ratio (LDR) and increasing credit costs. The current DBS HK CEO, Sebastian Paredes, was the former president director of Danamon from 2005 to 2010.

Rationale of the acquisition
According to DBS statement, the acquisition is inline with DBS’s strategic intent to become a leading Asian bank, with a diversified revenue mix. The deal will boost DBS’s overseas revenue from high growth markets like Indonesia. The combined banking platform will propel DBS to the 5th largest bank in Indonesia. The large balance sheet will help support the scale-up of its treasury and market operations.

The management said that the deal will bolster Danamon’s funding franchise, thus enables further business growth and improves resilience to withstand credit cycles. Danamon’s revenue growth will also be accelerated by leveraging DBS’ Asia-wide platform and product expertise. DBS expects the benefits of the merger to be fully realised in 2015.

Major share issuance
DBS will be issuing 439mn new shares at S$14.07 a piece to fund the acquisition from Temasek. The shares were on trading halt yesterday and were last traded at S$14.18 on Friday. After the new share issuance, DBS share base will increase by 18.2% to 2.85bn shares, thus diluting the DBS minority shareholders’ stake. Credit rating agency, Moody’s, has placed all DBS’ ratings on review for downgrade, stating that the acquisition may affect the bank’s financial strength.

Malaysian acquisition
On a separate note, DBS has separately received approval from Bank Negara Malaysia to start discussions on a potential take over of Temasek’s 49% stake in Vertical Theme, which owns 29% stake in Allicance Financial in Malaysia.

Singapore Market Wrap

Quiet start to fresh quarter

Notwithstanding a new quarter, Asian stock markets saw a quiet start ahead of the Easter holiday and Ching Ming Festival. Singapore's benchmark STI traded a mere 12 point, or 0.4% range intra-day while volumes fell 45% from Friday. The STI inched up 0.2% day-on-day (dod) at 3,016.07.

June Call STI 3000MBeCW120629 (P8BW) exercise level 3,000.*
June Put STI 2900MBePW120629 (P8CW) exercise level 2,900.*
Longer dated Call STI 3100MBeCW130131@ (PA7W) exercise level 3,100.*
Longer dated Put STI 2800MBePW130131@ (PA8W) exercise level 2,800.*

DBS on trading halt
The fall in the STI's turnover yesterday was also attributed to the suspension in trading of a key index stock. DBS Group was placed on a full-day trading halt, and shortly announced its proposal of a S$9.1bn deal to buy PT Bank Danamon Indonesia. DBS closed at $14.18 last Friday.

Call DBS MB eCW120702 (P0VW) exercise price $13.90.*
Call DBS MB eCW130102 (O9KW) exercise price $14.00.*
Call DBS MB eCW120803 (P5CW) exercise price $15.00*
Put DBS MB ePW120718 (P2NW) exercise price $12.80.*

STX OSV wins $211mn contract
Elsewhere, STX OSV said in an after-market announcement on Friday that it won a 1.2 billion Norwegian krone (US$211 million) contract from Norway's Farstad Shipping ASA for the construction of two deep-water offshore services and anchor-handling vessels. STX OSV's share price closed unchanged at $1.765 yesterday.

Call STXOSV MB eCW120801 (P2VW) exercise price $1.80.*

Overnight Market Wrap

US ISM Manufacturing Beats Estimates

The S&P500 kicks off Q2 with a good start. The index rose 0.8% to 1,419.04. Stocks recovered from earlier losses after the Institute for Supply Management's manufacturing index picked up more than expected, confirming an improving economy.

In Europe, the unemployment rate rose to 10.8% in February, a 15-year record high. Yesterday's PMI figures showed that the Eurozone manufacturing activity slowed, hitting major economies, Germany and France. Crude oil staged a 2.2% sharp rebound, returning to $105 per barrels.

Overnight Markets

Indices	Last	Change
STI	3016.07	0.2%
HSI	20522.26	-0.2%
DJIA	13264.49	0.4%
Nasdaq	3119.70	0.9%

Corporate News

Corporate Announcements

SembCorp Marine received a US$568mn contract to build a harsh-environment ultra deepwater semi-submersible drilling rig from North Atlantic Drilling Ltd.

Results Announcement
Tue 17 Apr: SGX 3Q12

Ex-Dividend Date
Wed 25 Apr: Keppel Corp ($0.26), SembMarine ($0.20)
Wed 26 Apr: STX OSV ($0.10)
Fri 27 Apr: OCBC ($0.15)
Mon 30 Apr: Cosco ($0.03)
Fri 4 May: Wilmar ($0.031)
Mon 7 May: UOB ($0.40), CapitaLand ($0.08)
Wed 9 May: DBS ($0.28)

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