Danareksa lays out merger plan to boost role

Rendi A. Witular, Jakarta

State-owned investment company PT Danareksa has revealed its plan to merge with a bank or an investment firm in order to become a major player in the country's capital markets, which are currently dominated by foreign players.

Danareksa's newly appointed director for direct investment, Harry Danardoyo, said a merger would be inevitable for the company in the future as it would need a stronger network and financial resources to compete with other companies in the industry.

"Actually, our shareholder (the government) had considered such a plan in the past. We just cannot avoid a merger if we want to survive in this business," said Harry during a press briefing on Thursday.

However, the government had yet to decide on which company or companies would be merged with Danareksa, Harry said.

He explained that without a merger, Danareksa would have difficulties in keeping up with the country's rapidly growing capital market sector, which requires investment firms to spend large amounts of money on the stock market, underwriting bond issues and on initial public offerings.

"A year ago, average daily transactions on the stock market were only valued at Rp 400 billion (US$46.5 million), but now the figure has reached Rp 1.1 trillion. Therefore, additional capital is needed to cope with this," he said.

The government had planned to sell shares in Danareksa, which runs securities firm Danareksa Securities, at the end of this year. However, the government has yet to decide whether the firm will be sold to a strategic investor or the public via the stock market.

Aside from the financial aspects, Danareksa has also been facing difficulties in selling its products and services due to its lack of a distribution network.

"Danareksa always has good products. But we don't have a big enough network to sell them. We need to merge with financial institutions that have wider and stronger networks," said Harry.

Several foreign-based investors have urged the country's investment firms and securities houses to consolidate so as to form bigger and stronger securities firms that could help prevent the stock market being a constant target for speculators.

Currently, there are numerous small-scale securities firms operating in the country, with the number of securities companies operating on the Jakarta Stock Exchange standing at 143.

"There are several foreign-based investment banks operating in Indonesia that have offered mergers to local securities firms. However, due to their pride, they refused the offers. These offers are actually good for the development of the market," said Harry.

In Malaysia, there has been significant consolidation in the securities industry, which has come to be dominated by investment banks.

Malaysia used to have 64 securities houses, but this figure now stands at 40 and is likely to be fall further to 20. Of the total of 64 securities houses, 10 are investment banks that form part of larger banking groups.

In terms of finances, the securities houses are stronger as they are backed up by their parent banks.

Elsewhere, Harry said that Danareksa would open the final bids from three firms interested in buying 58 percent of Danareksa's shares in Bank Bumiputera after the company received approval from its shareholders on May 14.

The three companies bidding for the shares are Bank Panin consortium, Malaysia-based ICB Financial Group Holding Ltd. and local insurance firm AJB Bumiputera.

Danareksa plans to announce the winner on May 17.