Bank Danamon to benefit from BTMU's potential 40% stake acquisition: Moody's

BTMU will reportedly invest around US$1.8b.

Last Thursday, the Nikkei reported that The Bank of Tokyo-Mitsubishi UFJ, Ltd., the main banking unit of Mitsubishi UFJ Financial Group, Inc., will buy a 40% stake in Bank Danamon Indonesia TBK (P.T.) for about US$1.8b (¥200 billion). Moody's said such a deal would be a credit positive for BDMN because it would gain a higher level of affiliate support.

Here's more from Moody's:

Currently, Temasek Holdings (Private) Limited has a 67% stake in BDMN, and BDMN’s rating incorporates affiliate support from Temasek. However, we view Temasek’s stake in the bank as more of a financial investment than a strategic one, and incorporate only a moderate level of support from Temasek in BDMN’s rating, leading to a one notch uplift to the bank's baseline credit assessment.

Because BTMU’s investment is more strategic, it may be more willing to provide BDMN extraordinary support in case of need, which would positively affect our assessment of affiliate support for the bank.

The proposed investment in Indonesia is part of a broader effort to expand overseas, which now accounts for about 40% of BTMU’s loan book, as a result of Japan’s ultra-low interest rates suppressing profitability. BTMU has a 77% stake in Bank of Ayudhya, a 20% interest in Vietnam JSC Bank for Industry and Trade, and a 20% stake in the Philippines’ Security Bank Corporation.

We note that media reports describe BTMU as acquiring only a 40% stake in BDMN, possibly because prevailing regulations in Indonesia do not permit a single investor to hold a larger stake in a bank unless it receives a specific exemption from regulators.

Our assessment of the willingness of an affiliate to provide support also considers the size of the stake it holds in the entity receiving support. Hence, BTMU’s ability to increase its stake beyond the initial 40% would be an important factor in our assessment of its support of BDMN. According to the Nikkei, BTMU aims to increase its stake beyond the initial 40%.