Bangkok Bank Plc agreed to buy 89.1% of Indonesia’s PT Bank Permata for about US$2.7 billion in the first major purchase of an overseas lender by a Thai bank.
The transaction fits with its strategy of transforming into a leading regional bank with a larger presence in Southeast Asian markets, Bangkok Bank said in a stock exchange filing. Indonesia is a highly attractive and fast growing market, it said.
The deal is a shift in tactics for Thailand’s second-largest bank by assets, which has traditionally been viewed as a conservative organization. The prospect of the purchase rattled investors, sparking a 4.4% slide in Bangkok Bank’s stock by the close on Thursday to the lowest level since 2016.
The acquisition at 1,498 rupiah per share implies a valuation of 1.77 times book value, and will be financed via a combination of internal resources and routine funding, Bangkok Bank said, adding it doesn’t expect to raise equity for the transaction.
It expects to complete the deal in 2020 subject to approvals and other conditions being satisfied, and anticipates conducting a tender offer for the remaining stake in the Indonesian lender.
Thailand’s challenges
Thailand’s banking industry faces domestic challenges from an economic slowdown, elevated household debt, deteriorating asset quality and low interest rates. The Indonesian economy is expanding at more than twice the pace of Thailand’s.
“The Indonesian banking sector is poised to continue delivering attractive growth while maintaining healthy margins,” Bangkok Bank president Chartsiri Sophonpanich said in a statement.
The acquisition could diminish hopes for a higher dividend payout by the Thai lender, Citigroup analysts Kritapas Siripassorn and Robert Kong wrote in a note ahead of the official announcement.
Bloomberg News earlier reported Bangkok Bank was in the running, along with Japan’s Sumitomo Mitsui Financial Group.
Standard Chartered and Jakarta-listed PT Astra International each own about 44.6% of Bank Permata. Earlier this year, Standard Chartered said the investment is no longer considered core and named Indonesia among four countries where it’s focused on reducing costs.
Capital
Bangkok Bank has sufficient capital to buy the Indonesian lender, but could find it difficult to manage a mid-sized bank in a market dominated by the top four, the Citigroup analysts said.
The fact that Bangkok Bank is prepared to take on the challenge points to the limited growth opportunities at home, said Kevin Kwek, a Singapore-based analyst at Sanford C. Bernstein & Co.
Trade flows between Indonesia and Thailand aren’t large enough to justify the deal, and there isn’t much room for wealth operations in the country, Kwek said. “It says a lot about Thai opportunity, though, for a Thai bank to look to Indonesia for growth despite obvious challenges.”
Bangkok Bank has operated in Indonesia since 1972. It has branches in Jakarta and sub-branches in Surabaya and Medan, according to its website.
The lender also has operations in other Southeast Asian nations, East Asia, Europe and North America. Some 14% of its revenue came from overseas last year, the most among Thai banks, data compiled by Bloomberg show.
The Thai government is trying to encourage domestic mergers to make banks bigger and more competitive. Two lenders, TMB Bank Pcl and Thanachart Bank Plc, are combining under that initiative to create the country’s sixth-largest lender.
Shares of Bank Permata rose 4.4% in Jakarta, outperforming the 0.7% drop in the country’s benchmark index.