This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 27, 2017).
Mitsubishi UFJ Financial Group Inc. said it planned to take a majority stake in a midsize Indonesian bank in a deal likely to top $4 billion, bolstering its presence in a fast-growing Asian nation to balance weakness at home.
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MUFG, Japan's largest bank, said it agreed to buy a 73.8% stake in PT Bank Danamon from Singapore state investment company Temasek Holdings Pte. and its affiliates.
The deal highlights MUFG's push to escape dependence on its home market, where low interest rates have squeezed margins and long-term growth is likely to be limited because the population is declining.
MUFG already has a big U.S. presence as the owner of Union Bank and the top shareholder in investment bank Morgan Stanley. MUFG held about 24% of Morgan Stanley shares as of November, according to a regulatory filing. And in 2013 MUFG agreed to buy a majority stake in Thailand's fifth-largest bank, Bank of Ayudhya PCL, in a deal valued around $5.6 billion.
MUFG said it planned to undertake the Indonesia acquisition in phases, initially buying a 19.9% stake in Bank Danamon for $1.2 billion, and raising the stake to 40% by the end of September 2018. An MUFG official said the bank wanted to acquire additional shares to reach the 73.8% stake as soon as possible after obtaining necessary approvals from regulators. MUFG said the price for the additional shares would be based on Danamon's book value.
If book value and other conditions remain constant, MUFG would spend $4.3 billion for the 73.8% stake, but factoring in a possible rise in book value, the bank could ultimately spend Yen700 billion ($6.2 billion) for that stake, according to a person familiar with the matter.
Temasek has been seeking to sell its stake in Danamon for many years. In 2013, a planned deal with Singapore based DBS Group Holdings Ltd. that valued Danamon at $7 billion fell through after running into resistance from regulators.
Since that time, the Indonesian rupiah has fallen against the dollar, allowing MUFG to offer more than DBS for its initial stake in rupiah terms but put a lower valuation on Danamon in dollar terms. MUFG is offering 8,323 rupiahs per share for its initial stake, more than DBS's offer of 7,000 rupiahs per share.
Bank Indonesia, the country's central bank, said that it would permit DBS to buy only a 40% stake initially in Danamon. Bank Indonesia said DBS could complete the full acquisition only if Singapore allowed "reciprocity" by allowing Indonesia's banks to open more branches there.
Under Indonesian rules issued in July 2013, both foreign and domestic banks are limited to buying initial stakes of 40% in Indonesian banks. Those stakes can be raised with Bank Indonesia's permission if the bank being acquired meets standards for corporate governance and financial health.
MUFG said that if it wins permission to go beyond a 40% stake, "this will provide an opportunity for all other existing Danamon shareholders to either remain as shareholders or receive cash from MUFG."
Temasek said it would work closely with MUFG "to lead the bank forward into its next phase of growth."
According to industry figures cited by MUFG, Danamon is the eighth-largest bank in Indonesia by assets and the fifth-largest by operating profit. Its areas of focus include small-business loans and consumer loans for autos and motorcycles.
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(END) Dow Jones Newswires
December 27, 2017 02:47 ET (07:47 GMT)