Indonesians to buy more Singapore firms

Indonesians to buy more Singapore firms

SINGAPORE (Reuter): Indonesian investors are likely to buy more Singapore listed companies to safeguard their assets in case of political crisis at home, analysts said yesterday.

The Stock Exchange of Singapore (SES) has seen a slew of corporate takeovers by Indonesian companies over the last few months, coinciding with a surge in tension between President Soeharto's government in Jakarta and an opposition party.

In mid-August, part of Indonesia's third biggest conglomerate, Sinar Mas, agreed to buy and transform troubled trading and property group Amcol Holdings Ltd and inject US$2.0 billion in assets.

The same week, Putera Sampoerna, who runs clove cigarette- maker PT Hanjaya Mandala Sampoerna, made a takeover bid for trading and telecommunications firm Transmarco Holdings Ltd.

Analysts said they detected a clear pattern in these and other bids by Indonesian interests and that the size and pace of the takeover trend appeared to be increasing.

"I think these takeovers will continue for a while, particularly at this time when the Indonesian situation is looking uncertain," said Yang Sy Jian, head of research at RHB - Cathay Securities in Singapore.

"It pays for Indonesian conglomerates to look for an alternative base to diversify earnings as a back-up if the political scene gets worse than expected," he added.

David Toh, analyst at ING-Barings, said the riots in Jakarta in July involving supporters of opposition leader Megawati Soekarnoputri, daughter of Indonesia's former leader Sukarno, had highlighted possible future risk for Indonesian firms.

Safe, stable and very close, Singapore provides an ideal refuge for companies wishing to expand out of Jakarta.

The city-state has low interest rates and open financial markets allowing easy financing of mergers, and has the added bonus of a stock market that has underperformed its regional competitors for the last two years.

Analysts say Indonesian buyers tend to look for firms that are inexpensive and fairly diverse so that there can be no objection by the SES to the new owners injecting new businesses into existing Singapore firms.

"The typical target would be small, or an underperformer, or an under-capitalized firm with businesses which are no longer viable or uncompetitive," said Toh. "And the existing owners must want to sell out."

A dealer with a large local bank said such targets might include a retail company finding Singapore's high wage and rental costs difficult to cope with, or a manufacturer which had failed to diversify successfully into new areas.

Singapore stores group Metro Holdings Ltd, pharmaceutical firm Haw Par Brothers or packaging group Carnaudmetalbox Asia Ltd, part of French group Carnaudmetalbox SA, could be possible targets, he said.

Michael Tan, research director at brokerage Lee & Co, said the Indonesian takeover trend was likely to be intermittent but involve more and more Jakarta-based firms over time.

"There will be hiccups, but it will continue," he said.

"What's interesting is that the players involved are getting bigger over time, and some of the biggest Indonesian groups are not here yet."