By Quentin Webb
HONG KONG (Reuters Breakingviews) - Japan’s largest lender is banking on an easier ride in Indonesia. Buying into Bank Danamon would nicely round out the regional presence of the $87 billion Mitsubishi UFJ Financial Group. And when it comes to both price and politics, MUFG looks better placed than the Southeast Asian group’s previous suitor.
Five years ago, Singaporean state investor Temasek tried to sell its controlling stake in Danamon to financial compatriot DBS. That sparked a backlash. Jakarta then stuck caps on bank ownership, killing the takeover in 2013, and sending an ugly message about its openness to foreign capital.
Now, however, Reuters says MUFG is talking to Temasek about buying a 40 percent stake in Indonesia’s fifth-largest lender for roughly 200 billion yen, or $1.8 billion.
MUFG needs to diversify away from its mature home market. Southeast Asia offers both proximity and growth potential, and an Indonesian outpost would complement existing interests in the Philippines, Thailand and Vietnam.
Danamon is also on the up; analysts reckon earnings will leap 48 percent this year and return on equity will hit a solid 10.6 percent. The Indonesian bank trades at just 1.4 times trailing book value, Eikon shows. That suggests a reasonable price, even if 68 percent owner Temasek demands a big premium for ceding control. DBS had been ready to pay 2.6 times, and in 2015 Taiwan’s Cathay Financial paid 3.2 times for a stake in the smaller Bank Mayapada Internasional.
The bigger question is around control. If MUFG has to abide by Indonesia’s 40 percent ownership ceiling, this would make any deal less attractive, because it would limit the buyer’s influence and because bank-capital rules penalise minority holdings. That’s partly why another lender that once harboured regional ambitions, Australia’s ANZ, has been selling off such stakes and retrenching.
That said, Jakarta can and does waive the cap - it did so for China Construction Bank last year. And a Japanese buyer is probably less controversial than one from neighbouring financial centre Singapore. Sometimes a little distance is an advantage.
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