Thu, 15 Apr 2010


By Netty Ismail
April 15 (Bloomberg) -- 3i Group Plc, Europe’s largest publicly traded private-equity firm, said it is seeking its first investment in Indonesia because the nation offers the biggest growth potential in Southeast Asia.

The London-based firm plans to close a deal in the world’s fourth-most populous nation in the next one to two years, said Mark Thornton, its head of Southeast Asia.

3i joins private-equity firms including U.K.’s CVC Capital Partners Ltd. and Washington-based Carlyle Group that have invested in the nation. They’re being lured by an economy that has fared better than its neighbors during the global recession and political stability under President Susilo Bambang Yudhoyono not seen since the ouster of former dictator Suharto in 1998.

“You can’t dismiss Indonesia; the demographics, the economics, everything is quite compelling,” Thornton, who is based in Singapore, said in an interview yesterday. “But it’s a market that’s still very young and the deal sizes tend to be quite small; there isn’t a deluge of deals today.”

Private-equity investments in Indonesia could increase fivefold to as much as $3 billion in 2010, from $570 million in 2009, according to estimates by the Hong Kong-based Centre for Asia Private Equity Research.

3i started its private-equity business in Southeast Asia in 2003 and has recently invested in Singapore-based companies, including reinsurer Asia Capital Holding, oil and gas services company Franklin Offshore and LHI Technology Pte, a medical- cable maker. In 2004, it invested in oil and gas explorer Pearl Energy Ltd., which generated a return of more than 100 percent.

Minority Stakes

The firm plans to make minimum investments of $30 million to $40 million for minority stakes in industries set to benefit from growing consumption as well as oil and gas companies, and health-care and financial services businesses, Thornton said.

“That’s part of the challenge, finding businesses that are big enough where you can take a minority stake with that sort amount of capital,” he said.

3i has yet to decide on how best to gain access to the Indonesian market. It is considering a number of options from setting up an office in Jakarta and hiring a local team, as it has done in China and India, to teaming up with an Indonesian private-equity firm, Thornton said. It may also set up a partnership with one of the well-known local families, he said.

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.

Stock Pickers

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. China’s and India’s demand for resources has boosted raw material prices.

The Jakarta Composite Index reached a record on April 7. Indonesia’s stocks are in a bubble and officials are prepared to put controls on capital inflows if needed to maintain financial stability, Perry Warjiyo, the head of the central bank’s economic research and monetary policy division said on that day.

“It is easy to say there’s an asset bubble in a country or sector; our job is to be stock pickers,” Thornton said. “We think we are good at understanding value. If a business is high growth, then it’s fine to pay a double digit multiple because on a price-earnings-to-growth ratio the investment looks fine.”

3i seeks to make 2.5 times to 3 times its money from holding investments for a four-to-five-year period, he said.

CVC agreed to buy the retail unit of PT Matahari Putra Prima in January, the London-based buyout firm’s first foray into Indonesia. Carlyle, the world’s second-biggest private- equity company, is “actively exploring opportunities” for its first investment in Indonesia, Anand Balasubrahmanyan, a Singapore-based director at Carlyle, said in December.