Wed, 04 Aug 2010
From: Reuters
By Fathiya Dahrul and Janeman Latul
JAKARTA, Aug 3 (Reuters) - China Investment Corp (CIC) may invest up to $25 billion in Indonesia, a minister of Southeast Asia's biggest economy said, a move that will help the fund secure resources in a country hungry for foreign financing.

China's $300 billion sovereign fund is initially ploughing $2 billion into coal, electricity and port projects in the world's largest exporter of coal for power plants, Indonesia's state enterprises minister Mustafa Abubakar said, although he gave no timeframe for the investments.

Indonesia also has abundant palm oil, copper and timber -- resources in strong demand in China, which has stepped up investments in resource assets from Australia to Canada to fuel its growth.

"Such investment in Indonesia would help China secure more resources in Southeast Asia and benefit from increasing trade in the region, serving China's national interest," said Zhang Haochuan, analyst at fund consultancy Z-Ben Advisors.

Abubakar told reporters that CIC had said it was interested in investing in three Indonesian state firms -- coal miner PT Tambang Batubara Bukit Asam (PTBA.JK), state electricity firm PLN, and state port operator Pelindo.

"CIC will form a joint venture and for the first batch it will invest $2 billion, but the ceiling (for their investment) could be up to $25 billion," said Abubakar, adding the agreement may not be finalised this year.

Ekoputro Adijayanto, adviser to the minister, said that Abubakar's comments were based on April meetings with CIC.

CIC spokeswoman Wang Shuilin could not be immediately reached for comment.

"It's a huge amount of money. The question is where is the money going? It's still unclear what projects are feasible," said Harry Su, head of research at PT Bahana Securities.

"It remains to be seen whether this is true or not. I mean commitment is completely different to implementation in Indonesia," Su added.

Bukit Asam's CEO Sukrisno said he had no knowledge of the CIC plan.

"If they want to invest they could do it by giving us loans for several of our projects," he told Reuters.

Bukit Asam shares slipped 2.7 percent on Tuesday, in line with a fall in the benchmark index .JKSE as investors were jittery about inflation. [ID:nWNAS9021]

Investors have poured into Indonesian markets in the past year, driving its stock market .JKSE to a record high this month, but the country has struggled to attract foreign direct investment (FDI) for years because of endemic corruption, red tape, poor infrastructure, and tough labour laws.

Economists say the country needs increased long-term FDI to make its finances more stable and to help it obtain an investment-grade credit rating, which would put it alongside BRIC nations such as Brazil and spur further institutional investment.

TWO-WAY BET

CIC [CIC.UL] invested $58 billion overseas last year, after sitting on a large cash pile in 2008, and a lot of its investments were in sectors where Indonesia is strong, such as natural resources and agriculture.

It had 28.4 percent of its diversified equity portfolio in Asia-Pacific at the end of 2009, according to its annual report. [ID:nTOE66S09A] The fund has already invested in Indonesia's biggest coal company, Bumi Resources (BUMI.JK).

Last year CIC lent Bumi $1.9 billion via debt instruments, but more recently, Bumi said the Chinese investor might buy shares in a coal firm controlled by the powerful Bakrie family.

China and the United States have both been courting Indonesia, with their leaders having planned to visit Jakarta this year, though the Asian powerhouse appears to be winning in investment terms as U.S. firms are put off by corruption.

"China has been active lately in Indonesia," said Anton Gunawan, economist at Bank Danamon. "It is part of its strategy to secure its energy needs, including coal, but it is linked with our infrastructure needs. So it's a two-way investment," he said.

Indonesia's economic growth and development has been hampered by a lack of adequate infrastructure including ports and power plants, but it sees FDI rising 25 percent this year as Asian investors bet on its domestic demand.



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