Banking Sector - No major surprises from Indonesia’s foreign cap rulings OVERWEIGHT

-  The press reported that Indonesia will limit financial institutions’ ownership of banks to 40%, according to regulations signed by Indonesia’s central bank (Bank Indonesia)’s Governor Darmin Nasution. Non-financial institutions can hold up to 30%, while individuals are limited to up to 20%, under the new rulings.    

-  For institutions to exceed the limit, they must be  fulfil a few conditions:- (a) they must be publicly listed; (b) they must have a minimum Tier  1 capital ratio of 6%; (c) they must be committed to holding the acquired bank for a “certain period of time” (the exact time period was not specified); (d) they will need to fulfil good corporate governance conditions; (e) the acquirer will be responsible to ensure at least a 20% public spread in five years’ time by 2017. Financial institutions could own more than 40% a stake as long as they obtained approval from Bank Indonesia.

-  We have confirmed verbally with CIMB Group Holdings (CIMB) that the rulings are not retrospective. Thus, CIMB will not need to pare down its 97.9%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk (CIMB Niaga). According to CIMB, the main changes from here onwards would be the need to fulfil the good corporate governance tests on a yearly basis. These include good operational structure, timeliness of disclosure, and review of responsibilities of directors. There are ranking which would be assigned, with Level 1 and Level 2 being the best levels while areas which are assigned at Level 3 and below would be considered as requiring further review.     

-  For Malayan Banking Bhd (Maybank), the company said it will be engaging with Bank Indonesia in relation to application of the rulings. We do not expect much impact given BII’s contribution to Maybank is small at 5%. 

-  Currently, Maybank still needs to fulfil its sell-down requirement to refloat a 20% stake in its 97.5%-owned PT Bank Internasional Indonesia (BII) under the Indonesia’s stock exchange, Bapepam ruling. This is in relation to Bapepam’s condition whereby under the New TakeOver Rule in 2008, a new controlling shareholder is obliged to divest to public shareholders a minimum of 20% and at least 300 parties within 2 years after a tender offer is undertaken.  Bapepam had since provided a conditional extension  to Maybank to the 2-year timeframe, with the conditions being:- (a) in the event that a re-float exercise would risk potential material losses to the new controlling party; (b) the material losses condition mentioned shall be triggered whereby the potential losses incurred by the new controlling party exceeds 10% of the total investment value. Maybank  had just obtained approval up to 29 December 2012 to fulfil the sell-down requirement. This would be the third extension. 

-  We estimate Maybank’s average cost of BII shares at Rp453/share. If we include the subsequent provision for impairment loss of RM1.6bil related to its acquisition of BII that was undertaken in FY09, we estimate the average cost of BII at Rp360/share. We expect RHB Cap to seek approval for its proposed acquisition of 80% stake in Bank Mestika. 

Source: AmeSecurities