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.