CVC AP makes Indonesia retail play

With CVC AP taking a controlling stake in a JV alongside the only other shareholder, the original owner, the deal further supports the Indonesia consumer story, which continues to frame deals in the country and showcase one of its impressive and unwavering strengths – its people.

Like the great majority of CVC AP’s deals, it is understood that Matahari came through the firm’s own relationship network. The transaction was primarily cash-based, and contrary to reports claiming up to $405 million in leverage courtesy of Standard Chartered and CIMB, a source close to the deal said the loans totaled far less than that, describing it as a “low leverage deal.”

Matahari currently operates 88 stores in 45 cities and is the number one department store in Indonesia. With 70 cities in the country boasting populations of more than one million people, CVC AP is likely looking to expand the operation in an economy driven by domestic consumption. There is certainly room for the modern retail market to grow, with just 16% of all retail shopping done in malls, and the majority taking place in street stalls and markets.

Southeast Asia’s largest economy has seen its GDP per capita increase fourfold in the past decade. With 44% of the population under 25 years old, the earning potential – and spending potential – of this youth population over their lifetime is something both economists and analysts expect will lend itself to investment in consumer-driven companies.

Over the past year, the crisis has led households to decrease discretionary spending, according to CLSA research. That said, clothing accounts for 6% of consumption – the same percentage as education. Only basics like food, housing, telecoms and transport rank higher on the list of priorities, putting Matahari and CVC AP in an excellent position.

Immediately after the announcement of the deal, both Standard & Poor’s and Moodys placed Matahari’s B1 rating on review. Ken Chan, a Moody's Vice President explained, “Moody's is concerned that the sale of MDS will negatively impact the company's operating and business risk profiles,” and will result in a loss of MDS’s EBITDA contribution to Matahari.

However, others point to the strengthening of the group’s cash position and its other businesses, including hypermarkets, family entertainment zones, bookstores, and more.

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• Topics
• Consumer
• Southeast Asia
• Buyouts
• CVC Capital Partners