* SMBC in talks to buy 40 pct stake in BTPN
* TPG expecting 25 pct premium to current market price
* TPG executives in Tokyo for further talks with SMBC
* BTPN trades at 3.81 times price to book
By Denny Thomas and Taiga Uranaka
HONG KONG/TOKYO, April 29 (Reuters) - Japan's Sumitomo Mitsui Banking Corp is in advanced talks to buy a $1.2 billion stake in BTPN, an Indonesian lender backed by TPG Capital, people familiar with the matter told Reuters.
SMBC's pursuit of Indonesia's seventh-largest bank by market value is another example of a Japanese company seeking to grow in that country's fast growing financial services market. A sale by TPG would also provide another case of a U.S. private equity investor raking in a massive profit from an early investment in an Asian financial institution.
In 2008, TPG Capital Management LP acquired a 71.6 percent stake in the Indonesian pensioners' savings bank, named Bank Tabungan Pensiunan Nasional Tbk PT (BTPN), for $195 million. The private equity firm's stake dropped to 58.5 percent after a rights offering in 2010.
SMBC, a unit of Japan's third-largest lender by assets Sumitomo Mitsui Financial Group Inc, is currently negotiating to buy 40 percent of TPG's stake, allowing it to abide by Indonesia's new foreign ownership limits for banks, the people added. The stake is currently valued at $1.2 billion, based on Friday's stock price.
SMFG and TPG declined comment.
The sources declined to be identified as the discussions were confidential.
TPG executives were in Tokyo this week for another round of talks, one person with knowledge of the matter said. It was not immediately clear what TPG plans to do with its remaining 18.5 percent stake, although the buyout firm may sell the shares in the open market, people familiar with the matter said.
Established in 1958, BTPN now operates as a full-fledged commercial bank with a market value of $3 billion and has more than 19,000 employees and over 10,000 branches.
BTPN is the world's seventh-most expensive bank among lenders with a market value of $1 billion or above, according to Thomson Reuters data. It trades at a price-to-book (P/B) multiple of 3.81, up from 0.7 in December 2008, when TPG struck the deal.
TPG is expecting a 25 percent premium over the current market price for the stake, which would take the deal value to $1.5 billion, giving it a P/B multiple of around five, one person familiar with the talks said.
A successful deal would give SMBC a foothold in the rapidly growing Indonesian economy and an under-developed banking market, where just 20 percent of working age individuals have a bank account, compared with nearly 100 percent in Australia and New Zealand. Indonesia, which is Southeast Asia's biggest economy, is forecast to grow at 6.2 percent in 2013, fuelling demand for consumer and corporate loans.
Last year, Indonesia issued new bank ownership rules that limit single ownership in local banks at 40 percent. The new rules have made it difficult for buyers such as SMBC to get control of a domestic bank.
The same rule has delayed the approval of Singapore's DBS Group Holdings Ltd $7.2 billion bid for PT Bank Danamon a year after it was launched. The Indonesian bank regulator is expected to make a final decision on the DBS-Danamon deal in May.
TPG and its Indonesian affiliate North Star agreed to a five year lock up when they acquired the stake in 2008. That lock up expired in March this year. Since then, several suitors have held informal talks to buy TPG's stake. SMBC's bigger rival, Mitsubishi UFJ Financial Group Inc had also expressed interest buying the stake, but those talks have since discontinued, the people familiar with the matter said.
It was unclear whether TPG and SMBC would announce a deal before Indonesian bank regulator would make a final decision DBS-Danamon deal next month.
Sumitomo Mitsui Financial Group is working with Goldman Sachs Group Inc, people familiar with the matter said.
Goldman Sachs declined to comment.
A successful sale to SMBC would be the latest lucrative exit from bank and insurance assets for private equity in Asia. Many of those investments were made around the mid-2000s as U.S. private equity firms in particular snapped up stakes in regional banks and insurers at low valuations following the Asian financial crisis that crippled many financial institutions across the region.
Earlier this year, private equity firm Carlyle Group LP sold its remaining stake in China's No.3 insurer China Pacific Insurance Co Ltd , raking in a total profit of more than $4 billion, its largest-ever dollar profit on an investment..
TPG's previous bank exits in Asia include the sale of an 18 percent stake in China's Shenzhen Development Bank, which the firm acquired in 2004. That generated a return of about 16 times the initial investment of $155 million, selling the stake in two blocks to Ping An Insurance for a total of around $2.4 billion in 2010.