SINGAPORE/JAKARTA - Singaporean bank DBS (DBSM.SI) has made the country's sovereign wealth fund Temasek an offer for its $3.2 billion majority stake in Indonesia's Bank Danamon (BDMN.JK), sources said on Friday, setting up Indonesia's biggest bank takeover.
The acquisition would tap strong potential growth in Indonesian banking and would be the first major deal by DBS Chief Executive Piyush Gupta, who took the helm in late 2009. Over the last two years, he has focused on turning around its existing businesses.
Gupta, a former Citigroup executive, is in Jakarta with a small group of senior managers to thrash out the price and financial conditions, one of the sources told Reuters.
"DBS bosses cancelled all internal meetings and have all gone overseas," the source said.
DBS's biggest deal to date was its $5.8 billion purchase of Hong Kong's Dao Heng Bank in 2001. DBS, Southeast Asia's biggest lender, is itself 29 percent owned by Temasek.
The company declined to comment.
"The Indonesian economy has been doing well. It's good to have a bigger footprint," said Roger Tan, chief executive of SIAS Research, the research arm of the Securities Investors' Association of Singapore (SIAS).
"The question is how much additional value DBS can get and the premium they will have to pay."
The 68 percent stake is valued at around $3.2 billion based on Danamon's last traded price.
Danamon said on Friday its biggest shareholder, controlled by Temasek, received an offer from an unnamed investor to sell the stake and asked for a share trading halt until April 2.
Temasek's Fullerton Financial Holdings TEM.UL also confirmed it had received an offer but did not identify the bidder.
It may not be a smooth deal.
Indonesia has said it could impose bank ownership limits, including those on foreign investors that recently scuttled some cross-border deals.
"DBS finally has the guts to do it but the question is how high is the valuation for Danamon?" said Teguh Hartanto, a senior banking analyst at PT Bahana Securities.
"The challenge for Danamon is harder over the coming years as their cost of funding is expensive compared to other banks and the central bank's rule on loan down payments will also hurt them as they got around 50 percent of annual profit from Adira Finance."
Banking penetration is relatively low in Indonesia, the world's fourth most-populous nation and loan growth is running at 20 percent a year.
(Additional reporting by Kevin Lim; Editing by John O'Callaghan and Andrew Callus)