Danamon to rise ownership in Adira by 20%

Ika Krismantari, The Jakarta Post, Jakarta | Fri, 02/13/2009 3:58 PM 

The country's fifth largest bank Bank Danamon will exercise its rights to increase its share ownership in PT Adira Dinamika Multi Finance by 20 percent this year. 

The rights, in the form of a call option, are set out in the 2004 purchase agreement signed when Danamon acquired its 75 percent stake in Adira, a multi-finance firm. 

The exercize of these rights will bring Danamons' ownership up to 95 percent of the multi -finance firm. 

"We intend to exercise out rights to call up 20 percent of Adira in 2009, the deadline year," Danamon president director Sebastian Paredes said on Thursday. 

He refused to disclose the total value of the deal as it was still under calculation. 

However, he said that the company would finance the acquisition from internal cash, as the bank had enough funds to do so, amounting to US$460 million at the end of 2008. 

With that amount, Paredes said that the company would also plan to buy back $ 300 million of sub-debts by the end of March. 

"We have already sent today an instruction to pay our sub-debts at the end of March," Paredes said. 

The sub-debt has a maturity date of 10 years, which will fall in 2014, but the bank has the option to buy back the debts in 2009. 

Danamon's decision is good news for Indonesian banking amidst the gloomy global scenario, which has caused some banks to drop their buy back options. 

Korea-based Woori Bank, Germany's Deutsche Bank and Spain's Banco Sabadell are among those failing to implement buyback plans. 

Referring to Danamon's targets in 2009, Paredes said that the bank had projected that loans would grow at less than 10 percent this year,. 

Of that figure the loans from small and medium enterprises would increase steadily at a growth rate of 20 percent. 

In 2008 the amount of loans grew by 25 percent to Rp 66.9 trillion ($ 5.6 billion), 60 percent of which came from small and medium enterprises. 

At the same year, Danamon's net profits dropped by 28 percent to Rp 1.5 trillion, from Rp 2.1 trillion in 2007 as it had set aside a major provision to cover possible losses on derivatives transactions. 

A derivative transaction is a foreign exchange contract that derives its value from an underlying asset, commodity or liability, and is normally used as a hedging or investment tool. 

Danamon director and chief financial officer Vera Eve Liem said that the company had set aside Rp 800 billion for the provision in 2008, an amount considered as adequate to anticipate troubles in the future. 

Vera explained that so far Danamon had 22 customers who had been exposed to derivatives products, with a total contract value of $220 million. 

She added that of these customers, there was only one customer which seemed to have problems. 

The company is publicly listed PT Elnusa, which is the subsidiary of state owned oil and gas firm Pertamina. 

Danamon is still in negotiation with Elnusa to resolve a $9 million discrepancy caused by the fall in the Rupiah in the end of 2008, Danamon vice president Jos Luhukay said. 

Eva said that total discrepancies in the 22 contracts reached up to $49 million. 

Problems with derivatives products arise when many exporters, who have hedged their currencies, get burned amid falling commodity prices and weak export demand, thus having problems in fulfilling their obligations.