The collapse of Singapore lender DBS’ US$6.5 billion bid for Bank Danamon is further evidence of a “rising tide of economic nationalism” in Indonesia that may deter foreign investors, analysts warn.
DBS unveiled its bid to buy 99 percent of the Indonesian lender with great fanfare in April last year, in what would have been Southeast Asia’s biggest ever bank takeover.
It seemed a perfect fit. Danamon has a huge branch network across the sprawling Indonesian archipelago and 6 million customers, and could serve as a launch pad to tap into a country where millions still do not have bank accounts.
Photo: AFP
DBS was in need of new customers away from its wealthy home base of Singapore and as Southeast Asia’s biggest bank could have provided cash for Danamon to expand.
However, the Singapore bank last week walked away from the takeover, its dream of buying Indonesia’s sixth-largest lender by assets in ruins after regulators put up barriers in the form of more restrictive ownership rules.
Announcing the decision, DBS Group chief executive Piyush Gupta insisted the bank was still “positive about Indonesia’s long-term potential” — but analysts were in no doubt the failure would send a negative signal to investors eyeing Southeast Asia’s top economy.
The failure was evidence that “global investors are facing a rising tide of economic nationalism in Indonesia,” said Rajiv Biswas, chief Asia-Pacific economist at global consultancy IHS.
“The combination of rising political and regulatory risks in Indonesia could create a toxic cocktail that deters foreign investors, despite Indonesia’s fast-growing consumer market,” he said.
Observers also warned it was a bad time for Indonesia to be scaring away foreign investors amid signs its economic boom is losing steam, with growth slowing and inflation rising.
It is just the latest example of an overseas company running into trouble in Indonesia, with critics saying that legislation is increasingly targeting foreign investors unfairly. Other instances include regulations that stipulate foreign miners must gradually give up majority ownership of mining assets and a plan to ban the export of raw minerals to encourage local production.
“Indonesia has a nasty habit of strangling its golden geese with regulation in particular when it comes to the politically sensitive issue of foreign operations there,” consultancy Control Risks said in a note.
It said the political climate was particularly difficult at the moment with “economic nationalism in vogue ahead of 2014 elections.”
Critics point out that in the case of DBS-Danamon, the central bank’s decision to overhaul bank ownership rules several months after the deal was announced followed an outcry by nationalist politicians.
Rules introduced in the wake of the Asian financial crisis of 1997 to 1998, which ravaged the Indonesian economy, allowed financial institutions to buy up to 99 percent of Indonesian domestic banks and were aimed at attracting investment.
However, under the new regulations, the central bank allowed financial institutions — both domestic and foreign — to buy only an initial stake of 40 percent. Bank Indonesia will only allow institutions to take a controlling stake if they go through a complex process of financial health tests — and some speculate this is unlikely for a foreign company unless Indonesia gets something in return.
There was speculation that DBS might have been granted a waiver to secure Indonesia’s biggest bank takeover in history.
The 99 percent stake DBS was seeking included 67.37 percent held by Asia Financial (Indonesia) Pte Ltd, a subsidiary of Singapore state investment firm Temasek Holdings. However, when the central bank made its decision in May, it only allowed the lender to take a 40 percent stake, and demanded Singapore open its financial sector to Indonesian banks if DBS wanted more.
And while the city-state’s initial statements about the deal seemed positive, there was little outward sign of progress in recent weeks before DBS decided to let the deal lapse last week.
Despite the concerns raised by analysts, Bank Indonesia Governor Agus Martowardojo has insisted that the door is still open to foreign investors.
“We are relatively open compared to other countries in the region,” he was quoted as saying in the Jakarta Globe newspaper.
Some in Indonesia also argued that doing away with the 99 percent cap was long overdue as the economy is booming and the country is right to try to keep more of the rewards from a sector that is set to grow exponentially. Only about half of Indonesians over 15 have bank accounts, leaving about 60 million, including many now joining the middle class, in need of banking services, according to authorities.
The 40 percent cap is also more in line with other Southeast Asian countries, none of which currently allow foreign companies to take controlling stakes in banks.
“Bank Indonesia has clearly reacted to noises made by leaders and parliament, but it’s quite true there has been an awful lot of access in the bank sector in the past,” said Keith Loveard, chief risk analyst at Concord Consulting in Jakarta.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last