Hong Kong was ranked by the World Economic Forum last year as the most important financial center in the planet, ahead of even New York and London, and rival Singapore is having troubles challenging it. One of the main reasons is that the financial industries of Hong Kong is now heavily anchored to China, a vast, booming and profitable market. Chinese financial instruments are traded to the world through Hong Kong, a trading volume so massive that Singapore just couldn’t catch up.
But Singapore isn’t ready yet to carve in and admit defeat; if Hong Kong can have its back on China, Singapore can likewise do so in ASEAN - the 10 countries which made up Southeast Asia. Though there is some slight differences; Hong Kong is a special administrative region of China, and there is no doubt on China’s willingness to prop up Hong Kong and provide it with full armaments to be Earth’s no.1 financial hub.
Singapore, on the other hand, has to deal with 9 other sovereign nations, each with their own respective ambitions. To them, there is nothing beneficial in their interests to make Singapore the main financial center in Southeast Asia. The lion city has got to put extra efforts if it wants that, and so began Singapore’s 2012 resolution…
Singapore figures that to centralize ASEAN financial networks on Singapore, it has to penetrate deep into the financial industries of each ASEAN state, which means taking over their banks and build them up into a dominant player. The plan is to eventually control numerous influential and powerful financial institutions across Southeast Asia, and have their financial apparatus all linked back to Singapore.
Singapore state-owned investment company Temasek Holdings usually get that jobs done, but Temasek is highly associated with the Singaporean government and had always attracted controversies in its acquisition. Such example is the sale of Shin Corporation, one of Thailand’s largest conglomerate, to Temasek Holdings in 2006. The Thais were outraged that such an important piece of assets was sold to Singapore, to the extent it complicated Singapore’s relationship with the military junta who took over Thailand later on.
Singapore promised it would eventually reduced its stake in Shin Corp, who is Thailand’s largest mobile phone operator, its sole satellite operator, a nationwide leading ICT company, and also whom owned 49 percent interests in Thai AirAsia. As of now Singapore’s Temasek is still holding 79.59 percent stake in Shin Corp.
Using Temasek to acquire banks across Southeast Asia would definitely drew all unwanted criticisms and nationalist furors. Thus Singapore has chosen DBS to perform the tasks. DBS Bank Ltd is a bank incorporated in Singapore, the bank was set up by the government of Singapore in June 1968, and today it is the largest bank in South East Asia by assets and market capitalization. On the surface, DBS is less linked to the Singaporean government, even though its largest shareholder is Temasek Holdings itself, who has a 29 percent stake.
Beginning April 2012, DBS (and Temasek) proceed on their Southeast Asian banks-acquisition spree. On April 4, Temasek transferred its 67.4 percent stake in PT Bank Danamon Indonesia to DBS, in a deal worth US$4.9 billion. DBS then informed the remaining shareholders in Danamon that it would buy out their shares at a hefty 52 percent premium, thereby giving DBS complete control over Danamon. PT Bank Danamon Indonesia would be combined with DBS own PT DBS Indonesia to create the fifth largest bank in Indonesia.
The deal sparks anger among Indonesian nationalists and put Temasek in spotlight again. It’s simple, the total cost of the deal would be US$7.2 billion, and DBS simply doesn’t have sufficient cash for that. But Temasek didn’t ask for cash payment from DBS, instead conducting a financial arrangement with the issuance of new shares which would raise Temasek’s stake in DBS from the current 29 to 40.4 percent.
Worried that the new combined bank would have full capital support from Singapore, some Indonesian bankers said they would try to block the deal and were considering a media campaign targeting public opinion in the hope of influencing politicians. “You’re going to see some movements to halt this deal in the coming days,” one of the bankers, a senior executive of a rival local lender, speaking on condition of anonymity because of what he called the sensitivity of the issue.
“This is about nationalism. We don’t have to be afraid of Singapore, but we are going to raise this case to the parliament, central bank and (banking regulator) Bapepam,” he added. Bankers and industry analysts though agreed there was little scope for a rejection of the deal, unless politics step in of course. Later, the Indonesian bourse told DBS it would have to sell some shares back to the public if the ownership exceeded 80 percent.
Done with Indonesia, DBS (and Temasek) is now moving quick to Malaysia. Temasek has a 14.2 percent stake in Alliance Financial Group (AFG) Berhad, who operates the Alliance Bank in Malaysia. It is now again saying those shares would be transferred to DBS. Meanwhile, DBS is also negotiating with Langkah Bahagia Sdn Bhd to buy out its approximate 14.8 percent stake in AFG. Langkah Bahagia, a Malaysian based investment company, has already signaled it wants to exit the banking group. In fact, the company is said to be offering to dispose its stake on AFG to Temasek since last year. If the deal passed, it would give DBS 29 percent stake in AFG.
A 29 percent stake should be sufficient for DBS to control and run the management in Alliance Bank, since there is no other major shareholder around. The next largest shareholder in AFG is Malaysian EPF, who hold 6 percent stake. Alliance Bank is currently the second smallest of the 8 major banks in Malaysia, but DBS is expected to merge the Hwang-DBS Berhad group, which operates the HwangDBS Investment Bank in Malaysia, to further consolidate its interests in the Malaysian financial sector. One thing for sure, once the deal goes through, Temasek would have an even bigger stake in DBS.
DBS next move is unknown. However, the bank has a 7.17 percent stake in TMB Bank, one of the largest retail bank in Thailand. In 2007, DBS attempted to secure 25.2 percent stake in TMB, which would make it the largest shareholder, but the venture failed after the Thai bank refused to allow DBS sufficient management control.