Brief Indonesia: Indo Politics: Key Takeaways from First Presidential Debate and more

In this briefing:

1. Indo Politics: Key Takeaways from First Presidential Debate
2. RRG Global Macro Weekly – Dramatic Brexit Defeat A Positive for Markets? We Are Not So Sanguine
3. Wanted: A 21st Century Monetary Theory
4. BDMN/BBNP Merger Leads to BDMN Buyout Arb
5. The Week that Was in ASEAN@Smartkarma – Asia’s Time, Indo Mini-Marts, and Singapore Property Woes

1. Indo Politics: Key Takeaways from First Presidential Debate

• We opine that Jokowi (incumbent President) is the best performer/debater in terms of public speaking and argument skills during the first Indo presidential debate. 
• What stands out to us is the display of stark personality differences between Jokowi (humble, down to earth) and Prabowo (hard-nosed, tough minded).
• The debate improves Jokowi’s likelihood of getting re-elected (a positive catalyst to Indo stock market), in our opinion.

2. RRG Global Macro Weekly – Dramatic Brexit Defeat A Positive for Markets? We Are Not So Sanguine

The dramatic defeat of PM May’s Brexit arrangement with the EU was seen by the markets as a positive development. Apparently the markets believe that this could result in Britain remaining in the EU.

While we agree this would be good news we consider it unlikely without many more months or years of uncertainty as another referendum is organized and implemented.

Romania: GDP in Q3 grew 4.4% y/y, up from 4.1% in Q2. The country’s economy is doing better than most EU countries.
Brazil: The CPI in Dec rose 3.7%, down from 4.05% in Nov. Lowest rate since May, as prices slowed for food and fuel.
India: The trade deficit in Dec narrowed to $13.1 bn. Exports rose a meager 0.3% and imports fell 2.44%. GDP growth of 7% is expected for this year and next..

3. Wanted: A 21st Century Monetary Theory

The globe is facing more than an ordinary business cycle.

Joseph C. Sternberg, editorial-page editor and European political-economy columnist for the Wall Street Journal’s European edition, recently interviewed Claudio Borio, head of the Monetaryand Economic Department of the BIS. Mr. Borio said that politicians have relied far too much on central banks, which are constrained by economic theories that offer little meaningful guidance on how to sustain growth and financial stability. The only tool they have is an interest rate that can affect output in the short run but ends up affecting only inflation in the end.

4. BDMN/BBNP Merger Leads to BDMN Buyout Arb

In December 2017, Mitsubishi UFJ Financial (8306 JP) launched a complicated three-step process to acquire up to 40%, then up to 73.8% (or more) in Bank Danamon Indonesia Tbk (BDMN IJ), five years after DBS’ aborted attempt to obtain a majority in the same bank. 

This was discussed originally in Pranav Rao’s Bank Danamon: Takeover Redux. 

MUFG initially bought 19.9 percent of Bank Danamon from Singapore state investor Temasek Holdings 15.875 trillion rupiah ($1.17 billion), then valuing the Indonesian lender at around $6 billion.

Step 2 saw the OJK give the OK (BDMN announcement in English) for MUFG to up its holding to 40% – the statutory maximum under the prevailing OJK regulation No.56/POJK 03/2016 – and the Indonesian Financial Services Authority (OJK), seemingly granted permission for MUFG to go above 40% in Bank Danamon when OJK deputy commissioner for banking, Heru Kristyana, wrote in a message to a Reuters journalist (article here) on August 3rd last year “They (MUFG) can have a larger stake than 40 percent once the merger (with Bank Nusantara) has gone through and as long as they meet provisions and requirements.”

As Johannes Salim, CFA pointed out in his interesting insight Bank Danamon: Fundamentals Revisited Plus Thoughts on M&A in March last year, the revised OJK regulation No.56/POJK 03/2016 placed the authority for determining whether or not a foreign acquiror could go above 40% squarely on the OJK – no BI approval would be necessary. 

Indonesia has a “Single Presence Policy” (OJK Regulation No. 39/2017) which requires that a foreign owner may not hold more than one control stake in a bank. In order to get to Step 3 which would be to acquire the remaining 33.8% of Danamon from Temasek affiliates (Asia Financial Indonesia and its affiliates), MUFG would need to merge its presence in Bank Nusantara Parahyangan (BBNP IJ) (also known as “BNP”) where it holds more than three-quarters of the shares (and has controlled since 2007) with Danamon. 

The New News

This morning’s paper carried a giant notice in bahasa announcing the planned merger between BDMN and BNP with shareholder vote for both banks 26 March 2019 (record date 1 March) and effective date 1 May 2019. The Boards of Directors and Boards of Commissioners of each bank

• “view that this Merger will increase the value of the company because it is a positive move for stakeholders, including the shareholders of Bank Danamon,” and
• “have proposed to their shareholders to agree with the resolution on the proposed Merger in each of their respective GMS.”

Indonesian takeover procedures generally require a Mandatory Takeover Offer procedure when someone goes over a 50% holding. But banks being bought by foreigners are a different category and bank takeovers are regulated by the OJK. In addition, the structure of such takeovers creates short-term options (for holders) and possibly longer-term obligations for the acquiror which are a little unusual, but provide for a very interesting opportunity in this case.

There is a trade here.

5. The Week that Was in ASEAN@Smartkarma – Asia’s Time, Indo Mini-Marts, and Singapore Property Woes

Macro Insights

In Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat, Sharmila Whelan suggests that the time has come for Asia to outperform developed markets.

In The Black Elephant Has Trumpeted, Dr. Jim Walker argues that we are on the cusp of a period of pronounced outperformance for Asian economies. 

In Catalyst Calendar for Thailand 2019, our Thai Guru attempts upcoming catalysts for selective stocks in Thailand including TMB Bank PCL (TMB TB), Airports Of Thailand (AOT TB), Indorama Ventures (IVL TB), Sino Thai Engr & Constr (STEC TB), and Major Cineplex Group (MAJOR TB).

Equity Bottom-Up Insights

In his on the ground insight, Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves, former Jakartan Angus Mackintosh revisits this leading Indonesian mini-market operator. After a meeting with management, he finds the company on an altogether more favourable tack.

In Ayala Corp Placement – Selldown by Mitsubishi Likely to Reignite Overhang Worries, Zhen Zhou, Toh takes a look at this significant transaction in the Philippines. 

in Capitaland (CAPL SP): Transformational Acquisition at a Premium, Arun George comments on Capitaland Ltd (CAPL SP)‘s latest acquisition and though he sees it as significant would take a wait and see stance on the stock. 

Sector and Thematic Insights

In Singapore Real Deals (Jan 2019 Issue 1, Anni Kum launches a new regular product commenting on significant developments in the Singapore property sector. Singapore Real Deals is a fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market. In the first issue of Singapore Real Deals, she will dive into the first property launch in Prime District 9 in 2019, RV Altitude, to get a sense of the product mix and pricing strategies that developers are adopting in a price-sensitive market. 

In Singapore Property – A Perfect Storm for the High-End Residential Market in 2019?, Royston Foo investigates some worrying developments on the supply side in Singapore property, which he suggests could negatively affect the market, especially the high-end.