CLSA Bank Danamon up 4.7% on the back of DBS raising US$10bn debt

DBS announced this morning an intent to raise US$10bn in senior debt. Please see below, comment from Bret Ginesky.
DBS announced this morning an intent to raise US$10bn in senior debt
While this raise was announced in June today the bank appointed investment banks to sell the offering.
DBS is formally stating that this is for "general funding" purposes
We believe funds could be used to purchase Temasek's 76% in Bank Danamon
Bank Danamon rose 4.7% today on heavy trading of US$12m
We believe Danamon shares could fetch 3.0x book or higher, reflecting a share price of Rp6,400 or higher, which is 15% upside from today's close
While we currently rate the stock an underperform, M&A speculation will continue to drive the shares higher. Our rec is under review.
Please see additional comments by Singaporean bank analyst Derek Ovington:

I think it's important to stress that there's an innocuous explanation for DBS raising so much debt, and that is to fund its growing balance sheet at relatively low cost given low bond yields right now.

However, as Bret points out the BDMN trading suggests there could be more to it than that.

Attached is the note that I wrote on the DBS-BDMN hypothetical. While the deal would be prima facie dilutive, and materially so, the note also shows that DBS could leverage up to mask the dilution and make a 3x book deal at least look more palatable. That's why I can't discount the possibility of a transaction.

I still think there's a low probability that DBS/Temasek will do it, but I may be over-rating their commercial judgement and/or under-rating their strategic desire.

In my view, M&A risk is just another reason to sell DBS (U-PF). It's expensive, has the weakest return profile and is the Singapore bank most exposed to margin downside.