Bangkok Bank Pcl snapped up a controlling stake in Indonesia’s PT Bank Permata for about $2.7 billion in the first major purchase of an overseas lender by a Thai bank.
The purchase of a near 90% holding from Standard Chartered Plc and a local partner fits with Bangkok Bank’s strategy of transforming into a regional lender with a larger presence in Southeast Asian markets, according to a filing. Indonesia is a “highly attractive and fast growing market,” it said.
Standard Chartered’s disposal of its stake, which will net about $500 million, comes as no surprise after the bank signaled in February that Permata is no longer core. The funds may be used to extend the emerging-markets lender’s share repurchase program, which has already returned $1 billion. Its shares climbed more than 2% in London.
The deal for Bangkok Bank is a shift in tactics for Thailand’s second-largest bank by assets, which has been viewed as conservative. The prospect of the purchase rattled investors, sparking a 4.4% slide in Bangkok Bank’s stock by the close 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 anticipates conducting a tender offer for the remaining stake in the Indonesian lender.
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 Inc. 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 Inc.
Standard Chartered and Jakarta-listed PT Astra International each own about 44.6% of Bank Permata. Earlier this year, Standard Chartered named Indonesia among four countries where it’s focused on reducing costs.
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 Pcl, 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.