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4/04/2012

Temasek has discovered the magic formula

Temasek Holding is selling its Indonesian Bank Danamon stake to DBS Bank for $9.1b. It was reported that it paid $365m in 2005 for a 51% stake in Danamon. It has subsequently increased its stake. The cost of the additional stake was not disclosed but the $9.1b would definitely give it a substantial return on its investment. This is the kind of ‘bee tang’ transaction that every fund manager is looking forward to. One cannot be helped but to say that Temasek must be laughing to the bank, to DBS Bank actually, when the sale would give it an additional 439 million of new DBS shares. This would raise its stake in DBS from 29.5% to 40.4%. It is really a deal made in heaven.

The best part of the deal, DBS Bank is so happy paying a premium of 56.3% over last month’s market price. What a win win situation, with buyer and seller happy like fart. DBS will now be the 5th largest bank in Indonesia and a foothold in the hottest emerging market.

Temasek should try to duplicate this formula by buying more bank stakes from emerging countries and resell it to DBS Bank. DBS too should try to buy bank stocks from Temasek instead of other sources and not to repeat the same deal as Dao Heng which it was not too happy with.

The partnership between Temasek Holding and DBS Bank is unbeateable. And the formula is not easy to duplicate. The bottom line of Temasek will get a big boost with this sale.

13 comments:

Anonymous said...

There is no Magic Formula. It is a calculated risk based on solid research and gut feel. (and luckily we didn't have people in Temasek who didnt do their research like some opposition MPs in Parliament) There will alwayss be big winners and big losers for a big fund like Temasek and GIC. The big winners average out the big losers.

Chua Chin Leng aka redbean said...

Calculated risk, solid research and gut feel do not make a good combination. That accounts for big losses and big gains.

A big fund should operate on calculated risk and solid research. That would minimise the loss and max the gain.

When I trade using gut feel, I am gambling, no need for any solid research. The combination for gambling is gut feel and risk taking.

Anonymous said...

The big losers are those whose shareholding in DBS get diluted.

Anonymous said...

same modus operandi of reits.

The said...

The best part is, if the deal is successful, Temasek makes billions. If the deal does not go down well, Temasek still makes about $600 million, and it is the other minority DBS shareholders that have to carry the can.

Anonymous said...

set up 2 companies, A and B. A buys and sells to B at huge profits. B dies never mind.

Anonymous said...

Very big premium to market of 56%. So let's consider this...DBS is paying 2.6x Book value for Danamon and then selling stock to Temasek at 1.13x book value. This is what they did when they paid over 5x book value for Dao Heng which proved a catastrophe for shareholders although not as bad. Four issues:

1) Why such a big premium? The stock was trading at 6,900 last November and had fallen 40% so is it necessary to pay such a huge premium to Temasek?

2) The political risk to DBS is huge and given Temasek lost their telecom antitrust case in the Supreme Court of Indonesia one should not be surprised that there are more onerous laws they do not want the risk on and prefer to transfer to other shareholders.This is why the Danamon stock is still trading well below the 7,000 bid price, deal risk.

3) And what of the US Federal Reserve? The Bank Holding Company Act covers DBS and Temasek as DBS has a branch in the US. The BHCA limits foreign holdings to 25% and Temasek is going to 40% of DBS. Do they have a waiver? Will DBS close down its US branch?

4) Clearly a wonderful deal for Temasek who bought Danamon and BII in the depths of the Asia crisis...kudos to them. However is this a good deal for DBS shareholders when even the CEO is saying it is expensive and dilutive for the next few years at a minimum.

Tremendous web of inter-relationships in this deal amongst people at Temasek, Fullerton and DBS. For example, CEO of Danamon formerly was MD at Temasek. Head of Fullerton 100% owned by Temasek is/was on the board of Danamon. Chairman of DBS has close ties to Temasek via the Temasek Advisory Board and took over Singapore Technologies from Ho Ching. Chairman of Danamon has close ties to Temasek and previously held senior positions at DBS.

Chua Chin Leng aka redbean said...

Any one thinks incest is good?

The said...

/// Head of Fullerton 100% owned by Temasek is/was on the board of Danamon. ///

Isn't this due to the fact that Temasek is a major shareholder of Danamon and thus entitled to a board seat?

Kaffein said...

This is my personal view and specualtion:

1) How come DBS is willing to buy such a big stake of 9.1b whereas all powerhouse investment companies didn't think of it?

2) Temasek Holdings is one of the major shareholder of DBS. DBS is paying out a very high sum to Temasek. Temasek will now look strong in the books. The money from it gets from DBS wil return back to DBS either through buying more shares, or putting the money into DBS bank.

To me, it's inflated money and nothing really changed. Unless another investment house from the US (eg Goldman Sach) bought from Temasek.

In other words, it's LPPL. And all these to make Temasek Holdings look good on paper. By large it may be a brilliant strategy where 'I scratch your back, you scratch mine'. Still fishy when you have two government-linked type of institutions in the buy-outs.

I may have a misconception. This is just my $0.02 worth.

Kaffein

Chua Chin Leng aka redbean said...

The market knows.

Anonymous said...

B is the son of A.
A bought some goods at $1.00,B buys the goods from A at $2.00,the market is still selling the goods at $1.00 plus.
Should I congratulate A for being such a brilliant father for doing so?
I am not sure yet!

Anonymous said...

Crabby stuff, left pocket sell to right pocket with holes in both pockets