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Minggu, 17 Juli 2011

Bank update - limiting ownership? - CLSA

While Indonesian banks clearly stand out (see our Extreme banking report recently) and plenty of opportunities are present, there will be volatility from time to time.

One of these volatilities may have been presented itself yesterday in news headline that Bank Indonesia is planning to limit the stake of a single majority shareholder to below 50%. This proposed regulation would apply to both local as well as foreign shareholders AND may be effective retroactive as early as 4Q2011. The regulation will still need to be approved by House of Representatives and Investment Coordinating Board.

While this proposed regulation has been talked about for a while the surprise here is the retroactive part and that the regulation includes locals as well (there are 29 listed bank stocks out of 127 banks in Indonesia)

This also means that minority shareholders in banks being taken over in the future could be impacted as the tender offer threshold (50%) would be more difficult to reach. As such, minority shareholders may not enjoy mandatory tender offer upside in the future. Current potential M&A plays here include Panin Bank (PNBN), Danamon (BDMN IJ), and Bank Tabungan Pensiunan (BTPN IJ).

Perhaps worth reiterating the point that after the financial crisis in 1998, Indonesia has been one of the most open markets to foreigners. There has essentially not been any foreign ownership limitation in Indonesian banks. This is especially true if compared to our ASEAN peers.

Also not mentioned whether state-owned banks will be affected. Key here is implementation - would be extremely difficult, to say the least. We continue to like Indonesian banks for long term growth profile and “extreme” profitability matrix.

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