Foreign Investment a Big Boon For Many Indonesian Firms 

Monday, 20 September 2010

The Jakarta Globe

The mix of stability, relatively calm politics and solid economic growth is seeing investors clamor to gain a foothold in Indonesia.

Foreigners have been pouring money into Southeast Asia’s emerging giant — the region’s biggest economy — which was largely unaffected by the global financial crisis due to strong domestic demand and limited reliance on wobbly Western export markets.

The Jakarta Composite Index has soared threefold from its low in October 2008, hitting historic highs last week as the country’s improving prospects attracted foreign capital, dealers said.

State firms Garuda Indonesia and Krakatau Steel have IPOs imminent. Both have been in the works for two years, and were postponed late in 2008 because of fears amid the global downturn. But the optimism surrounding them now is a further signal of Indonesia’s rise as an attractive investment destination.

“Stable economic and political conditions in Indonesia continue to be attractive to international investors,” said Gifar Indra Sakti, an analyst with Sucorinvest Central Gani.

The World Economic Forum’s 2010-11 Global Competitiveness Index rankings, released this month, showed Indonesia as the third biggest mover, up 10 notches to 44th place.

A survey of business leaders from 523 companies by UK Trade and Investment and the Economist Intelligence Unit, published last week, put Indonesia fourth behind China, Vietnam and India as a destination for investment capital over the next two years.

“As (Asia’s) third-fastest growing economy, with huge upside potential for our markets, Indonesia is one of those exciting growth stories and our companies are increasingly receiving wider access to financing,” said Gita Wirjawan, chief of the Indonesia Coordinating Investment Board.

Foreign direct investment in the archipelago of 240 million people — the fourth most-populated country in the world — soared 53 percent year-on-year to Rp 35.6 trillion ($4 billion) in the second quarter.

But analysts said concerns about corruption and the rule of law made equities — rather than direct investments in plant and infrastructure — a more attractive entry point.

Equities are seen as the easiest way to get into the Indonesian market, with investors regularly citing legal uncertainty, chronic corruption and poor infrastructure as obstacles to direct investment in the mainly Muslim country. In a major review of Indonesia’s financial stability, the International Monetary Fund warned last week that foreign investors would be cautious until more is done to fight corruption and improve the rule of law.

Around 20 local companies will have raised more than $5 billion on the share market by the end of the year if current plans come to fruition. Many say they want to pay off debt and cash up for expansion.

Fourth-ranked lender Bank Negara Indonesia is targeting 10 trillion rupiah in a December rights issue, while another state-owned bank, Mandiri, is marketing a Rp 14 trillion issue in the same month.

Indofood Sukses Makmur, the world’s biggest instant noodle maker, is expecting to raise about $700 million from offering 20 percent of its subsidiary PT Indofood CBP in October. The offering is nine times oversubscribed, banks said on Friday, and will be the biggest Indonesian IPO in two years, after coal miner Adaro Energy raised $1.3 billion in 2008.

State-owned Krakatau Steel, the country’s biggest steel producer, aims to list in November.

“Hopefully we can get fresh funds up to $600 million. We plan to use the funds to expand our business and modernize our machinery,” said Fazwar Bujang, Krakatau’s president director.

Another state-owned enterprise, flagship carrier Garuda, also plans its listing in November, aiming to raise around 300 million dollars to strengthen its capital structure and help fund six new Airbus A330-200 aircraft valued at $1.15 billion.

The airline — which was on an EU safety blacklist from 2007 to 2009 — has announced aggressive expansion, codenamed “Quantum Leap,” planned to run through to 2014.