Commentary: Planned DBS-Danamon deal puts Temasek in the spotlight again
Vincent Lingga, The Jakarta Post, Jakarta | Tue, 04/10/2012 9:45 AM
The planned US$7.3 billion acquisition by Singapore DBS Group Holding of publicly listed Bank Danamon should be one more confidence-building step in Indonesia’s long-term economic advance, but equally it could turn into an ugly political controversy.
DBS chief executive officer Piyush Gupta made the business plan fully transparent in line with the best practices of good corporate governance by announcing it at a news conference here last week, but he has unintentionally set off what could be weeks of pointless political debates, whipped up by inordinately nationalistic grandstanding.
The transaction will not lead to any fundamental changes in terms of ownership, as both DBS, Southeast Asia’s largest bank, and Bank Danamon, Indonesia’s sixth-biggest, are by and large controlled by Singapore government investment company Temasek through subsidiaries.
But several narrow-minded and seemingly xenophobic lawmakers have embarked on what could develop into a nasty public-opinion campaign to sabotage the planned transaction by whipping up jingoistic sentiment.
As it happens, Indonesia’s largest banks (state-owned) have long complained about what they see as the regulatory discrimination they face in building operations in Singapore.
Misguided lawmakers and narrow-minded analysts may exploit these grievances as ammunition to strengthen their campaign against Bank Indonesia’s approval of the transaction.
But as both Singapore and Indonesia have a great deal at stake in the business plan, both governments should see to it that the planned takeover runs smoothly according to existing laws and regulations.
Poor handling of the issue could harm both countries.
Since DBS, already the largest in Southeast Asia, will never achieve its goal of being a leading bank in Asia without having strong positions in Indonesia, India and Hong Kong, Singapore’s government is well advised not to allow the local bankers’ complaints to sabotage the merger.
Simply ignoring these grievances could unnecessarily expose the planned DBS acquisition to noisy political posturing and set off weeks or even months of pointless public debates hyped by excessively nationalistic sentiments.
Singapore’s government should pay heed to the lessons learned from the Temasek experiences between 2006 and 2008.
Temasek decided in June 2008 to divest its entire 40.8 percent stake in PT Indosat and sell the asset to Qatar Telecom after suffering more than two years of bashing by politicians and trade unions in state companies as well as messy lawsuits.
On the other hand, however, the Indonesian government would look bad in the eyes of international investors if Bank Indonesia, the central bank, which has yet to approve the DBS-Danamon deal, succumbed to political pressure by delaying indefinitely the approval of the transaction.
As there is no current law in Indonesia against the DBS-Danamon transaction, refusing to ratify the deal could scare off new investors at a time when the country should be benefiting greatly from the investment grade it recently gained after a lapse of 14 years.
Fundamentally, the planned DBS acquisition is simply a normal business transaction.
It is Temasek’s strategy to build synergy between DBS with its extensive experience and expertise in corporate banking such as infrastructure, project and trade financing and sharia banking and Danamon, which has 6 million customers and operates more than 3,000 branches and 3,000 ATMs in Indonesia.
The strategy is certainly linked to the increasingly important role Indonesia, Southeast Asia’s largest economy, plays in the global economy, and is part of the DBS effort to gear up for the ASEAN Economic Community in 2015.
Indonesia, especially its banking industry, will benefit greatly from the transfer of skills, expertise in risk management and other good governance practices, along with greater access to sources of international finance.
Banks serve as the heart of the economy.
Strategic investors and owners such as DBS, with good reputations and huge capital resources, will accelerate the operational restructuring of Bank Danamon to provide comprehensive financial services, notably credit — the lifeblood of the economy.
Experiences in other countries such as Thailand, South Korea and even Malaysia, which like Indonesia were hit by the financial crisis in 1997, point to the great benefits derived from the entry of major international banks with strong reputations and vast capital to the development of a sound domestic financial sector.
The issue could be politically sensitive because a bank is not simply a business entity in an ordinary sense, given its fiduciary responsibilities, the multiplicity of transactions it is involved in and its key function within the economy.
Banks are institutions of trust. That is why the principles for good corporate governance for banks are much more elaborate than those for other commercial entities.
It is also why not everybody who can put up adequate capital is allowed to have a controlling ownership of a bank.
Those who want to become controlling owners and commissioners of a bank have to pass the fit-and-proper test set by the central bank to assess their technical competence and integrity.
However, what narrow-minded analysts or xenophobic lawmakers may forget is that whoever is the controlling owner of Bank Danamon, it, like every other bank, is still legally obliged to play by the rules made by Bank Indonesia.
DBS chief executive officer Piyush Gupta made the business plan fully transparent in line with the best practices of good corporate governance by announcing it at a news conference here last week, but he has unintentionally set off what could be weeks of pointless political debates, whipped up by inordinately nationalistic grandstanding.
The transaction will not lead to any fundamental changes in terms of ownership, as both DBS, Southeast Asia’s largest bank, and Bank Danamon, Indonesia’s sixth-biggest, are by and large controlled by Singapore government investment company Temasek through subsidiaries.
But several narrow-minded and seemingly xenophobic lawmakers have embarked on what could develop into a nasty public-opinion campaign to sabotage the planned transaction by whipping up jingoistic sentiment.
As it happens, Indonesia’s largest banks (state-owned) have long complained about what they see as the regulatory discrimination they face in building operations in Singapore.
Misguided lawmakers and narrow-minded analysts may exploit these grievances as ammunition to strengthen their campaign against Bank Indonesia’s approval of the transaction.
But as both Singapore and Indonesia have a great deal at stake in the business plan, both governments should see to it that the planned takeover runs smoothly according to existing laws and regulations.
Poor handling of the issue could harm both countries.
Since DBS, already the largest in Southeast Asia, will never achieve its goal of being a leading bank in Asia without having strong positions in Indonesia, India and Hong Kong, Singapore’s government is well advised not to allow the local bankers’ complaints to sabotage the merger.
Simply ignoring these grievances could unnecessarily expose the planned DBS acquisition to noisy political posturing and set off weeks or even months of pointless public debates hyped by excessively nationalistic sentiments.
Singapore’s government should pay heed to the lessons learned from the Temasek experiences between 2006 and 2008.
Temasek decided in June 2008 to divest its entire 40.8 percent stake in PT Indosat and sell the asset to Qatar Telecom after suffering more than two years of bashing by politicians and trade unions in state companies as well as messy lawsuits.
On the other hand, however, the Indonesian government would look bad in the eyes of international investors if Bank Indonesia, the central bank, which has yet to approve the DBS-Danamon deal, succumbed to political pressure by delaying indefinitely the approval of the transaction.
As there is no current law in Indonesia against the DBS-Danamon transaction, refusing to ratify the deal could scare off new investors at a time when the country should be benefiting greatly from the investment grade it recently gained after a lapse of 14 years.
Fundamentally, the planned DBS acquisition is simply a normal business transaction.
It is Temasek’s strategy to build synergy between DBS with its extensive experience and expertise in corporate banking such as infrastructure, project and trade financing and sharia banking and Danamon, which has 6 million customers and operates more than 3,000 branches and 3,000 ATMs in Indonesia.
The strategy is certainly linked to the increasingly important role Indonesia, Southeast Asia’s largest economy, plays in the global economy, and is part of the DBS effort to gear up for the ASEAN Economic Community in 2015.
Indonesia, especially its banking industry, will benefit greatly from the transfer of skills, expertise in risk management and other good governance practices, along with greater access to sources of international finance.
Banks serve as the heart of the economy.
Strategic investors and owners such as DBS, with good reputations and huge capital resources, will accelerate the operational restructuring of Bank Danamon to provide comprehensive financial services, notably credit — the lifeblood of the economy.
Experiences in other countries such as Thailand, South Korea and even Malaysia, which like Indonesia were hit by the financial crisis in 1997, point to the great benefits derived from the entry of major international banks with strong reputations and vast capital to the development of a sound domestic financial sector.
The issue could be politically sensitive because a bank is not simply a business entity in an ordinary sense, given its fiduciary responsibilities, the multiplicity of transactions it is involved in and its key function within the economy.
Banks are institutions of trust. That is why the principles for good corporate governance for banks are much more elaborate than those for other commercial entities.
It is also why not everybody who can put up adequate capital is allowed to have a controlling ownership of a bank.
Those who want to become controlling owners and commissioners of a bank have to pass the fit-and-proper test set by the central bank to assess their technical competence and integrity.
However, what narrow-minded analysts or xenophobic lawmakers may forget is that whoever is the controlling owner of Bank Danamon, it, like every other bank, is still legally obliged to play by the rules made by Bank Indonesia.
