Danamon Takeover Validates Indonesia

http://www.thejakartaglobe.com/editorials/editorial-danamon-takeover-validates-indonesia/508840

Editorial: Danamon Takeover Validates Indonesia
April 03, 2012

One of Indonesia’s biggest challenges as it seeks to expand its economy and build more infrastructure is access to capital. The country will need in excess of $150 billion over the next few years to upgrade its infrastructure, which in turn will fuel economic growth and help every Indonesian.

But the government has limited financial resources with which to fund such large investments, given that it will not be able to cut down on the costly fuel subsidy in the near future. It will thus have to depend heavily on the private sector. Domestic as well as foreign investors will have to shoulder much of the spending load.

The country’s banking sector will play a particularly important role in terms of providing the necessary capital to help companies expand and grow.

It is against this backdrop that DBS Group Holdings’ acquisition of Indonesia’s Bank Danamon should be viewed. Singapore-based DBS is the largest bank in Southeast Asia, with huge financial resources and extensive banking know-how.

The deal, worth $7.2 billion, illustrates the attractiveness of Indonesia’s banking sector. Valued at 2.6 times book value, the transaction is DBS’s biggest purchase, eclipsing the $5.4 billion it paid for Hong Kong’s Doa Heng Bank in 2001.

The deal is good not just for Bank Danamon but also for Indonesia at large. It will allow the bank to expand more aggressively in the auto-financing and micro-credit lending businesses. Danamon has done extremely well over the past few years but now faces funding challenges which the acquisition will resolve.

For Indonesia, the deal shows how far the country has come. Revamped following the 1997-98 financial crisis, the banking system is now both healthy and robust. The sector is solid proof of the benefits of economic liberalization and implementing global best practices.

Since it was reopened to foreign investment in the late 1990s following its dramatic collapse, the banking sector has gone from strength to strength.

This latest deal will further enhance Indonesia’s reputation as a good place to do business, which in turn will draw more investors and spur growth