PT Bank Danamon Tbk Rights Issue On The Way - AAA

Bank Danamon’s fifth rights issue should have minor change in its ROE assuming the bank’s floating increase to 40%, eligible to get tax benefit. Rights should increase potential loan growth but at the same time dilutive.

± Cutting Margin
Bank Danamon reported that they will conduct rights issue in this year to strengthen their capitalization ratio that in 1Q11, CAR ratio already at 14.9%. The bank already appointed Deutsche Bank and Citigroup as standby buyer and Danareksa as underwriter. Assuming BDMN will increase the floating to 40% in order to enjoy tax benefit, the bank’s new share would be 1.8 bn, diluting EPS by 13% but BVPS should increase by 3% as the banks’ book value will increase higher than the increase in number of shares. Proceed will be Rp5.2 trillion, higher than previous rights on which the bank raised Rp4 trillion.

± Valuation, HOLD, TP Downgrade to Rp6,500.
As rights would certainly diluting ROE and but at the same time increasing the bank’s ability to grow, we downgrade our TP from Rp6,700 to Rp6,500. HOLD