Fri, 11 Dec 2009
From:
By Netty Ismail
Dec. 11 (Bloomberg) -- Carlyle Group, the world’s second- biggest private-equity company, is “actively exploring opportunities” for its first investment in Indonesia as buyout firms raise bets on the resource-rich nation.

The fund is “very open to teaming up on deals” with local investors, including private-equity firms, companies and family- controlled business groups, Anand Balasubrahmanyan, a Singapore- based director at Carlyle, said yesterday. He declined to specify industries the firm, which typically seeks investments worth at least $75 million to $100 million, is targeting.

“The stars seem to be aligned for Indonesia,” Balasubrahmanyan said in an interview. “Over time, Indonesia will turn out to be an important destination for private-equity capital in Asia, as Asia becomes a key area for global private- equity investments.”

Washington-based Carlyle’s interest in the world’s fourth- most populous nation comes as Affinity Equity Partners, set up by former executives of UBS AG’s private-equity unit, starts operations there and TPG’s local affiliate steps up investments. After a decade in the shadow of China and India, private-equity investments in Indonesia could double to about $1 billion in 2010, from $570 million in the first 11 months of this year, according to the Centre for Asia Private Equity Research Ltd.

They’re being lured by an economy that has fared better than its southeast Asian neighbors during the global recession. China’s and India’s demand for Indonesia’s resources has boosted raw materials prices, while consumer confidence has been buoyed by political stability under President Susilo Bambang Yudhoyono not seen since the ouster of former dictator Suharto in 1998.

BRIIC?

Economic growth will likely accelerate to as much as 7 percent from 2011, providing a case for Indonesia’s inclusion in the so-called BRIC economies along with Brazil, Russia, India and China, Morgan Stanley said in June.

The Jakarta Composite Index has gained 83 percent this year, the second-best performer in Asia, while the rupiah has risen 16 percent. Still, Indonesian companies are trading at about 15 times estimated earnings, compared with almost 21 times in India and 24 times in China, according to Bloomberg data.

Northstar Pacific Partners, the Indonesian affiliate of Fort Worth, Texas-based buyout firm TPG, is pouring money into resources and industries set to benefit from growing consumption, areas where the nation has “strong competitive advantages,” said Patrick Walujo, co-founder of the Jakarta-based firm, which together with TPG control PT Bank Tabungan Pensiunan Nasional.

“There will be an explosion of income,” he said. “All the best performers in our portfolio are from the consumer space.”

Farallon Capital

The renewed interest by private-equity firms -- which typically seek to buy assets at a discount, restructure them, then sell for a profit within seven years -- follows San Francisco-based Farallon Capital Management LLC’s 2002 investment in PT Bank Central Asia, Indonesia’s largest financial services firm by market value.

Farallon is estimated to have raked in more than $1 billion of returned capital for its investment in Bank Central Asia, said Kathleen Ng, managing director for Asia Private Equity Research in Hong Kong. The investor and its Indonesian partner paid about $567.5 million for 51 percent of the bank in 2002 and sold its remaining stake in June.

Raymond Zage, Singapore-based managing director of Noonday Asset Management Pte, which became a separately managed Farallon unit in January 2004, said the firm doesn’t provide information on its investments or results to the public.

No ‘Gold Rush’

“We certainly see private-equity investors’ growing appetite to scout for assets in Indonesia, but we don’t believe that it is going to be a ‘gold rush’ phenomenon,” said Ng. “It is Indonesia’s natural resources assets that are beckoning.”

Indonesia is the world’s biggest palm oil producer and holds some of the largest deposits of natural gas and minerals such as coal and copper.

Kay Mock, founding partner of Saratoga Asia II LP, said he’s worried that rising competition could inflate bids.

“What keeps me up awake at night is someone managing billions of dollars coming in, paying ridiculous prices and spoiling the market,” he said.

Saratoga Asia Fund II, which started investing last year, owns stakes in PT Adaro Energy, Indonesia’s second-largest coal- producer, and a palm oil concession in West Kalimantan province.

Legal Hurdles

Patrick Alexander, Jakarta-based managing director of Batavia Investment Management, said the “biggest single pitfall” holding back investors is inadequate legal protection.

Yudhoyono, who began his second five-year term on Oct. 20, has pledged to advance the drive to curb graft. Indonesia’s rank in Transparency International’s corruption perception index rose this year to 111 from 126 in 2008.

Private-equity investment opportunities of more than $100 million each have also been rare because large Indonesian companies are predominantly either state-owned or controlled by families unwilling to give up control, Carlyle’s Balasubrahmanyan said. This may change as investors help strengthen management, he said.

“Indonesia is definitely on the turn in terms of investor perception in a way which I haven’t seen since before the Asian crisis” of 1997 and 1998, said Batavia’s Alexander, who has invested there since 1992. “Indonesia is in vogue again.”



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