Indonesia Set to Cap Bank Owners’ Stakes: Sources

Jakarta Globe, Reuters, Rachel Armstrong and Janeman Latul, May 24, 2012

DBS wants to expand in Indonesia, and Bank Danamon
might be the way to do it. (Reuters Photo)

              

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Singapore/Jakarta. Indonesia’s central bank is set to limit the maximum stake a single shareholder can take in the country’s banks to below 50 percent, a move that could scupper Singapore-based DBS Group’s $7.3 billion bid for Bank Danamon.

DBS’s acquisition plans were thrown into limbo late last month when the Indonesian central bank said it would not approve the deal until it had published a long-awaited set of rules on bank ownership. Bank Indonesia did not disclose details of the rules at the time.

According to sources with direct knowledge of the plan, Bank Indonesia is expected to reduce the single-shareholder threshold from the current 99 percent to a level below 50 percent. That would likely ruin DBS’s plan to buy the 67.4 percent stake held by Singapore state investor Temasek Holdings in Indonesia’s Danamon, unless it negotiates an exemption.

The central bank is also expected to set out differing ownership rules depending on whether the shareholder is another financial institution, a non-financial institution or a family. Family shareholdings are expected to be given the lowest threshold, but all are expected to be under 50 percent. 

Those rules could also force several other large shareholders to sell down their stakes in Indonesian banks, including the Hartono family which holds a 47.6 percent stake in Bank Central Asia.

“There is some concern about local banks being taken over by foreigners, but that’s not the only concern that Bank Indonesia has. BI wants to change the rules so that shareholders can act as a check and balance against each other,” said Bono Daru-Adji, a partner at Assegaf Hamzah and Partners law firm in Jakarta.     

Bank Indonesia believes banning majority shareholders will prevent a controlling owner from abusing a bank’s operations for their own financial gain. 

Parallels in Southeast Asia

Restrictions on bank ownership already exist in other Southeast Asian nations. Malaysia caps foreign ownership of local banks at 30 percent. And in Singapore no single investor can own an interest of 5 percent or more of the voting shares of a domestic bank without the approval of the finance minister.

The Indonesian central bank has been mulling these rules for two years, but DBS’s swoop on Danamon is likely to have pushed it to finally get the rules in place.  One source said the planned new ownership thresholds suggest “on a government-to-government level there is a stand-off between Singapore and Indonesia.”

The rules are expected to be announced in June with the central bank’s board of governors set to hold a meeting on them next week.  They are expected to apply to domestic and foreign investors, although government-owned banks are unlikely to be affected. 

What has added to the confusion over the DBS-Danamon deal is that DBS is yet to publish a formal acquisition plan in the Indonesian press, a step required by law in order for such a deal to go ahead.

“It’s fair for BI to say they don’t know there is an acquisition of Danamon by DBS because currently there hasn’t been any acquisition plan announced in the newspaper yet as required by BI regulation and Indonesian company laws,” Assegaf Hamzah’s Adji said.

When this matter was raised during a regulation conference in Singapore last week, DBS’s corporate secretary, Linda Hoon, said the plan is in the process of being drawn up and that the lender has taken extensive legal advice on the matter. However, she added at the event that there are concerns new regulation could prove an obstacle.

“The bank is still concerned about changes that could come from BI and Bapepam (the capital markets regulator),” she said.  

A spokeswoman for DBS said the bank is still awaiting BI’s formal announcement on the new rules. 

Wider Impact

Danamon shares soared more than 50 percent when the DBS deal was first announced, but its shares have fallen 16 percent from that peak given the ongoing uncertainty. Were DBS to abandon its acquisition plans, Temasek would still be forced to eventually sell down its stake in Danamon in order to comply with the new rules. 

Worries about the new rules, though, stretch beyond DBS and Danamon. New regulation is not expected to affect state-controlled lenders such as Bank Mandiri, but a score of banks, which already have foreign controlling shareholders, could see enforced divestment.  This would include CIMB Niaga, controlled by Malaysia’s CIMB Group, and Bank Internasional Indonesia which is controlled by Malayan Banking Berhad (Maybank) . 

That would fuel concerns that Indonesia is becoming increasingly hostile to foreign investment, given recent proposals that limit foreign ownership in mining companies to 49 percent.  Bank Indonesia deputy governor Muliaman D. Hadad told reporters on Wednesday that the bank is aware of the concerns.

“We have heard some concerns, we pay attention to those, though we cannot disclose yet what it’s going to be. We have calculated, there will be a long time for adjustment,” he said.

Reuters

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