By CARINE LEE

 

Moody's said on Monday it has placed all of DBS Bank's (DBS) ratings on review for downgrade.

 

'The review of DBS' ratings will evaluate the financial impact of this relatively large acquisition on the bank's creditworthiness,' it said.

The rating actions were prompted by the bank's announcement that it will acquire up to 99 per cent of Indonesia's Bank Danamon for S$9.1 billion.

'DBS Group Holdings - as a holding company - has limited earnings capacity whereas it will have higher leverage ratios after this transaction. Therefore, DBS - as the group's principal earnings contributor - is expected to play a substantial role in supporting the increased debt burden of its parent,' said Moody's.

Moody's said DBS will likely be required to 'upstream higher dividends' to provide the bulk of the funds that its holding company will need to service debt, and to pay dividends on its enlarged share capital base.

'Importantly, the review will also consider Moody's concerns that DBS' changing risk profile over time may be indicating an increased risk tolerance that would be inconsistent with its standalone bank financial strength (BFSR) of B, which maps to a baseline credit assessment (BCA) of aa3,' said Moody's.

UPDATE 1-DBS to pay $7.2 bln for Indonesia's Bank Danamon

(Recasts with details, adds background)

By  Saeed Azhar  and Kevin Lim

SINGAPORE, April 2 (Reuters) -  DBS Group Holdings,Southeast Asia's biggest bank, has agreed to pay S$9.1 billion ($7.24 billion) for Indonesia's  Bank Danamon  in shares and cash, stumping up a premium of around 52 percent to become the country's fifth-biggest lender.

Singapore-based DBS, which is making the move as part of its goal to become a leading Asia-wide bank, said on Monday it would initially pay S$6.2 billion in shares to buy a 67.37 percent stake from Singapore state investor  Temasek Holdings.

It would then buy out Danamon's minority investors for cash, with both the share and cash payments pitched at 7,000 rupiah ($0.77) per Danamon share.

DBS said it would issue 439 million new shares to Temasek at S$14.07 each. The state investor already owns about 29 percent of DBS.

When combined with DBS' existing Indonesian assets, the acquisition would make DBS the country's fifth-largest lender.

In the same statement, DBS said Malaysia's central bank had allowed it to begin talks with a unit of Temasek to buy an effective 14 percent stake in Alliance Financial Group .

These acquisitions would be the first major deals by DBS Chief Executive Piyush Gupta, who took the helm of the Singapore-based lender in late 2009.

The biggest challenge will be persuading investors that DBS has not overpaid, as it did when it bought Hong Kong's Dao Heng Bank more than a decade ago.

Gupta, 52, has spent a large part of his career in India and Southeast Asia - areas where DBS is keen to grow - but he will be tested in Indonesia where rules on foreign bank ownership change frequently.

DBS had record net profit of more than S$3 billion ($2.39 billion) last year.

Credit Suisse and Morgan Stanley are DBS's joint financial advisers, while WongPartnership LLP and Hadiputranto, Hadinoto & Partners are legal advisers. ($1 = 1.2574 Singapore dollars) ($1 = 9144.0000 Indonesian rupiahs) ($1 = 1.2574 Singapore dollars) (Reporting by Saeed Azhar and Kevin Lim Editing by John O'Callaghan and Mark Bendeich)