DBS Group Holdings ended a bid to acquire PT Bank Danamon Indonesia for US$6.5 billion ($8.3 billion) in what would have been Southeast Asia’s largest banking takeover after failing to win regulatory approval for a majority stake.

The agreement with Danamon’s biggest shareholder, Temasek Holdings, will lapse after tomorrow’s deadline, Singapore- based DBS said in a statement today. Southeast Asia’s largest bank had offered on April 2, 2012, to buy 99% of Danamon -- including a 67% stake from Temasek -- for 66.4 trillion rupiah ($8.3 billion).

The deal’s failure poses a setback for DBS Chief Executive Officer Piyush Gupta’s ambitions of expanding in faster-growing countries to reduce reliance on lending in Singapore, Southeast Asia’s least-profitable loan market. The acquisition had been delayed for more than a year after Indonesia implemented new bank ownership rules that limit DBS to a 40% stake.

“Indonesia was supposed to give them a leg up in terms of growth,” said Julian Chua, a Kuala Lumpur-based analyst at Nomura Advisory Services Sdn. “The growth areas for them would still be North Asia, Asean region and India.”

Buying Danamon would have given DBS an opportunity to expand in higher yielding markets as domestic loan profitability remains the weakest in the region.

Indonesia’s former central bank Governor Darmin Nasution told parliament on May 21 that DBS would be allowed to buy a 40% stake, in line with bank ownership rules set after the takeover bid was announced in April last year.

EQUAL ACCESS
Indonesia has been using the transaction to seek equal access in Singapore for its banks. The central bank wants reciprocity for the Singapore operations of PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Bank Negara Indonesia, its three biggest state-owned lenders, Nasution had said.

Bank Indonesia signaled in March that it might implement a five-year waiting period before acquirers can increase stakes above 40%. Foreign buyers must commit to supporting the economy by lending to productive sectors, among other criteria, it said.

The original agreement called for DBS to acquire Temasek’s 67.4% stake in Danamon by allowing Singapore’s state- owned investment company to swap its Danamon holdings into DBS shares. The swap was agreed to at a price of 7,000 rupiah for each Danamon share and called for DBS to issue 439 million new shares to Temasek at $14.07 apiece, increasing Temasek’s stake in DBS to 40.4% from 29.5%.

Following that transaction, DBS would make a tender offer for any remaining Danamon stock for 7,000 rupiah a share, taking its holding in the Indonesian bank to 99%.

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