Indonesia sells out of Danamon

Government raises $274 million from the sale of its 10.5% stake in Bank Danamon.

As part of its ongoing effort to sell off stakes in the nation's banks, the Indonesian government raised Rp2.68 trillion ($274 million) on Wednesday from the sale of its remaining 10.5% stake in PT Bank Danamon, the country's fifth largest lender by assets. The shares were priced at Rp5,200 each, a 1.9% discount to the Rp5,300 closing share price on the Jakarta Stock Exchange on Wednesday.

The offering was 1.36 times oversubscribed for the 515.22 million shares of Bank Danamon, which is controlled by Deutsche Bank and Temasek Holdings, Singapore's state-owned investment company that has been on an Asia-wide buying spree recently. According to a statement issued by the Indonesian Minister of Finance Jusuf Anwar, the government decided to sell its remaining shares in Bank Danamon through a market placement based on the bank's strong share prices.

Indeed, the stock price was close to its all time high since 2002 and Bank Danamon had just released a good earnings report, notes Sutha Kandiah , head of UBS investment bank's equity capital markets for Southeast Asia. UBS and PT Danareksa Sekuritas advised the Indonesian government on the sale.

"It's a premium bank in Indonesia and also the Temasek ownership is seen as a major positive by institutions too. So based on the numbers, performance and the ownerships, if you were thinking about owning a bank in Indonesia you would probably want it to be this one," says Kandiah.

UBS and Danareksa Sekurities also advised the government on the sale of a 10% stake in Bank Danamon last year, which raised Rp 1.7 trillion. Danamon was not always an attractive bet.

The government took it over from former owner Usman Atmadjaja, after injecting Rp 12.5 trillion into the bank to save it from insolvency during the 1997 Asian financial crisis. But then in June 2003 Deutsche Bank and Temasek paid Rp3.08 trillion for a 51% stake in Danamon and brought in a slew of foreign bankers to help restructure the company's direction, such as beefing up its efforts to capture the SME market.

Bank Danamon's acquisition of a 75% stake in Adira Finance for Rp850 billion ($86.7 million) in cash in April 2004, is an example of its push to capture more of the mainstream lending market. Adira Finance specializes in auto and motorcycle financing, and holds a 12% market share in the motorcycle business.

Ever since, Danamon's bottom line has been improving. On August 1, Danamon reported a 17.4% rise in net profit to Rp1.3 trillion for the first half of the year. Loans, as of June 30, grew 47% mostly channeled to the self-employed mass market, small/medium enterprise and commercial sector, says Sebastian Paredes, President Director of Bank Danamon.

And shares of Danamon have gained 21% this year - higher than the market index gain of 19% - but dropped 2.75% to Rp 5,300 in Tuesday's trading. So it was a good time to sell off the shares; and the government needs the money if it hopes to plug the budget deficit, which is expected to reach some Rp 26 trillion this year.

"This will help the government of Indonesia solve its budget deficit problem which is one of many factors that influence foreign investors in their decision making to invest in Indonesia," notes Ito Warsito, President Director of PT Bahana Securities.

Analysts expect the government to also sell its shares in other banks by the end of the year, including its 5% stake in the nation's second largest lender, Bank Central Asia, its 5.53% share in Bank Internasional and its 5.4% stake in Permata Bank.

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