A new sweetheart

The pursuit

Mitsubishi UFJ Financial Group (MUFG) has moved to snap up at least 73.8 per cent in Bank Danamon, which is controlled by Singapore's Temasek Holdings. Assuming the offered price for the first share tranche, Danamon will be valued at about US$6 billion.

The courtship

The deal will be done in three phases.

Phase 1: MUFG will buy a 19.9 per cent stake in Danamon for 15.9 trillion rupiah, or about US$1.17 billion. The price was based on a price-to-book multiple of two times.

Phase 2: MUFG will secure regulatory approvals to raise its stake in Danamon to 40 per cent. This is expected to close between Q2 and Q3 of 2018

Phase 3: MUFG will seek blessings to up its stake in Danamon to at least 73.8 per cent.

The one that got away Can MUFG avoid the same fate that beset DBS? South-east Asia's largest bank walked away from its US$7.3 billion deal with Danamon in 2013, after Indonesian regulators moved to cap foreign ownership of banks at 40 per cent in 2012, the year the deal was made public.

DBS's proposal, which valued Danamon at about 2.6 times of the bank's book value then, was stuck for 16 months amid regulatory uncertainty. One Indonesian regulator was quoted by the press at the time saying that DBS would only be allowed a controlling stake beyond 40 per cent, if Singapore allowed Indonesian banks to build their presence in the city-state as well.

Vital statistics

Danamon is the fifth most profitable Indonesian commercial bank by earnings, with a leading position in microfinance. In 2016, it grew net income by 11.5 per cent to 2.67 trillion rupiah.

Founded in 1956, the bank was taken over by the government at the height of the Asian financial crisis, before being merged with nine other banks in 2000. Temasek bought its majority stake in Danamon in 2003.

MUFG is part of Japan's largest banking group. The Danamon deal would add to its string of acquisitions in Asean, including a 77 per cent stake in Thailand's Bank of Ayudhya Public Company, 20 per cent in Vietnam's VietinBank, and 20 per cent in Security Bank Corporation in the Philippines. While MUFG's deal has been the source of speculation for months, the Japanese interest in Indonesia and Danamon has been talked about since 2013.