Published November 09, 2017
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Bank of Tokyo-Mitsubishi UFJ aims to buy roughly 40% of Indonesia's Bank Danamon with an eye toward a future majority stake, extending its Southeast Asian dealmaking push into the region's most populous country.
The Mitsubishi UFJ Financial Group unit's board decided Wednesday to begin negotiations in earnest with Danamon and its majority shareholder, Singaporean state wealth fund Temasek Holdings, as well as with local authorities. BTMU seeks to turn Danamon into an equity-method affiliate as early as mid-2018, entitling it to a cut of the Indonesian lender's earnings. The initial investment is seen at around 200 billion yen ($1.76 billion).
Though foreign ownership of Indonesian banks is capped at 40%, this restriction can be relaxed for investors that meet certain requirements, such as pledging to contribute to the local economy. Four Indonesian lenders are under majority foreign ownership by multinationals including HSBC.
Jakarta-based Danamon is Indonesia's fifth-largest bank by market capitalization and ranks eighth by total assets. Net profit grew 14% to 2.79 trillion rupiah ($206 million at current rates) for the fiscal year that ended in December 2016. Danamon holds a solid presence in both retail and corporate banking, boasting a domestic network of more than 1,800 locations groupwide.
BTMU has pursued Southeast Asian deals in recent years, starting with a 2012 agreement to purchase about 20% of the Vietnam Joint Stock Commercial Bank for Industry and Trade, better known as Vietinbank. The Japanese bank spent 170.6 billion baht ($5.15 billion at current rates) in 2013 to acquire 72% of Thai lender Bank of Ayudhya, and it took a 20% stake in the Philippines' Security Bank last year. Buying Danamon would provide a foothold in one more major market.
BTMU's gross profit in the Asia-Oceania region totaled just $8.9 billion in 2014, compared with $22.9 billion for HSBC, according to Nomura Securities. The Danamon deal would add an estimated $500 million-plus to the Japanese lender's total, putting it closer to players such as Citigroup. The move also would boost the share of BTMU's profits earned overseas from 40% now to more than 50%, a first for a Japanese bank.
As international measures to combat money laundering and terrorism financing grow stricter, BTMU plans to perform careful due diligence to detect any compliance concerns that could force it to break off the talks.
Re-disseminated by The Asian Banker from Nikkei Asian Review