Sampoerna's takeover highlights RI's potential: King

Sampoerna's takeover highlights RI's potential: King

The government's efforts to put Indonesia back onto the radars of
investors received a boost when U.S. tobacco giant Philip Morris
International acquired PT HM Sampoerna in March for some US$5
billion. Louis Camilleri, CEO of Altria Group -- Philip Morris'
parent company -- will on Sept. 15 deliver a speech at the
Euromoney Global Conference in New York, to explain the group's
experience in investing in Indonesia to other investors. The
event will also be attended by President Susilo Bambang Yudhoyono
and Sampoerna's new president director, Martin King, who will
take part in the conference's panel discussion. In light of the
occasion, The Jakarta Post's Urip Hudiono recently talked to King
on the topic. Following are excerpts from the interview:

Question: Philip Morris' decision to invest in Sampoerna came
somewhat as a surprise to many considering how many investors
still question Indonesia's investment climate. Can you explain
this?
Answer: That commitment had to do with a number of different
areas.

One thing, is the size and importance of the Indonesian market
in the world economy. Indonesia has over 210 million people and
is the fifth largest tobacco market in the world, so this makes it
a very large and important market. We feel that any large
investor has to pay attention to this, and to consider Indonesia
because of its size and importance in the world.

The second thing that we looked at was the overall business
climate, and we felt -- and still feel -- that Indonesia is on a
good track of improving its investment climate.

Certainly, the administration of the President has made some
difficult decisions, and has been very transparent about
attacking the challenges in Indonesia.

And then the third reason for our willingness to invest is the
quality of Sampoerna -- the quality of the brand, the quality of
the people, and the great momentum and success of this company
over its 92-year history.

So those three things together, when we looked at it, justify
the very significant investment. And we will tell that and
communicate that to other investors so that they can decide if
Indonesia is the right place for them to make an investment as
well.

Indonesia's economy has recently been under pressure from soaring
oil prices, a weakening rupiah, rising inflation and another
possible fuel price hike, besides such problems of corruption and
lack of legal certainty. What effect do you think this will have
on Indonesia's investment climate?

Certainly the economic challenges are very real, and it's very
important that they be resolved. And I think that the steps that
are being taken to attack these problems are having some effects,
and we're very positive about in moving forward.

And keep in mind also that we looked at this investment from a
very long-term perspective, so don't look at the currency market
or the situation over a short period as the only thing we're
considering -- we're considering an investment that goes out for
years and years in perpetuity.

You previously mentioned the government's transparency in taking
action in improving the economic situation. Can you elaborate
more on this?

I think one of the most encouraging aspects of this
administration is that it is willing to talk about the challenges
very openly and transparently. In fact, I recently attended a
speech by the President at an investor forum here in Jakarta and
I found it very encouraging that he spoke quite frankly and
openly about the challenges.

And I think that this is the first step towards solving any
problem -- to be able to look at it in the eye and understand the
problem and formulate the plans to attack it.

Can you comment more on the issue of lack of legal certainty and
the government's progress in addressing it?

Any investor in any country wants to have a legal framework and a
regulatory framework that offers a couple of aspects. One aspect
is that it be a level playing field, in other words, that
different companies and different competitors, whether their
foreign or domestic, play by the same rules that doesn't favor
over one group or another.

So that's important for us -- that we be dealt with fairly in
terms with our competitors -- not any better but no worse than
the competition. I also think that investors look for a certain
level of predictability. If the laws and regulations are going to
change, that's OK, and certainly within the rights of the
government and laws need to be improved over time anyway.

But to know what's coming and to be able to predict and plan
and have a voice or at least a chance to talk it out before
things change, is important to investors.

Did you consider the government's recent decision to raise
cigarette retail prices by 15 percent in July as among such
uncertainties?

I think the recent increase in cigarette bandroll prices is a
good example of where there was in fact clear communication.

I think that the process that was used was appropriate. We
certainly had a chance to voice our opinions, as did our other
competitors in the industry.

How is Sampoerna's business going after the acquisition?

It's going very well. Our market share is increasing, we've
maintained the momentum that Sampoerna had in the early part of
the year. Our brands are doing well, our three main brands are
gaining market share: A Mild is gaining at a rate of one share
point a year, Hijau about half a share point, and Dji Sam Soe is
also up between 0.1 and 0.2 percent over the previous years.