Danareksa lays out merger plan to boost role

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.