GP/LP Faceoff: Investing Indonesia

How risky is Indonesia as an investment destination?

"The risk is considerable but the environment is getting better. There have been concerns on the political stability, corruption, labor laws and red tape, but things have improved over the last few years. Another issue is the volatility of the rupiah, driven by high degrees of speculative capital inflows and outflows." - Pak-Seng Lai, MD, Head of Asia, Auda International

"We don't view PE in Indonesia to be any more ‘risky' than PE in any emerging market ... As with all nascent PE markets where managers are on their first or second fund, the risks arise more from the people part of the equation, such as investment judgment and team dynamics." - Marc Lau, Investment Director, Axiom Asia, Private Capital

"We are expecting a sovereign rating upgrade to investment grade within the next 12-18 months. This will be a reflection of how risky we are relative to other countries." - Veronica Lukito (pictured), CEO, Ancora International

"Since the 1997-98 Asian financial crisis, the investment climate has improved. Most of the macroeconomic indicators (budget deficit, foreign exchange reserves) have shown consistent improvement, while the Indonesian rupiah has been relatively stable in the past ten years. With domestic consumption as the main driver of the economy, Indonesia is also less susceptible to external shocks." - Kay Mock, Partner, Saratoga Capital

How does the market compare to China or India?

"Indonesia has historically attracted less attention from global investors. On a funds-raised basis, Indonesia's PE-to-GDP penetration ratio is about one tenth that of China and almost one fifteenth that of India. This has allowed early investors to pick up investments at more attractive valuations. Going forward, as Indonesia gains prominence as an investment destination, this valuation gap will shrink, but should nonetheless present some interesting opportunities for investors." - Marc Lau

"The Indonesian market is less established compared to China or India. The PE penetration rates is significantly lower, less than one fourth of these two economic powerhouses. From a regulatory perspective, Indonesia is more similar to India, as both are vibrant democracies with diverse constellations of local constituents that complicate investment activity. From a development standpoint, Indonesia is likely to be between five to seven years behind India. In terms of valuation, the Indonesian equity market offers more attractive, less expensive P/E multiples compared to China or India." - Kay Mock

"We are relatively still underdeveloped in infrastructure compared to China, which means that there is a fair amount of value unleashing once the development flourishes. This is on the back of the population demographics, which are young and upwardly mobile. Compared to India, our valuation is still relatively low. We are also a key main raw material supplier to China and India, mainly in natural resources. The Chinese and Indians are looking to invest heavily into Indonesia." - Veronica Lukito

"Indonesia is still quite a distance away from China and India as a market. Unlike China or India, Indonesia does not have world-class manufacturing or globally-oriented service industries. Due to its archipelagic nature (with 17,500 islands), it is difficult to develop a comprehensive national infrastructure. The current government is more open to the participation of foreign companies in the economy, but its FDI numbers are still low as compared to China and India." - Pak-Seng Lai

Could Indonesia become one of Asia's top three investment targets?

"Definitely. With GDP of $600 billion and a population of 240 million, Indonesia offers tremendous potential for growth. With a stable political environment and an administration that is focused on fostering a higher quantum of FDI through appropriate policies and continued investment in infrastructure, Indonesia will likely remain a very attractive investment destination. It is also likely that in the next three to five years, Indonesia's sovereign bond will reach investment grade." - Kay Mock

"Investing in Indonesia's is complementary to investing in China and India, but If you look at the UNCTAD statistics, it's remarkable that from 2006-09 Indonesia attracted just $26 billion of inward FDI compared to $120 billion for India and $351 billion for China. Even adjusting for GDP, the supply of investment capital in Indonesia has been constrained in light of its status as a fast-growing and large economy in Asia. This creates opportunities for providers of PE capital, and we expect investment activity in Indonesia to rise accordingly." - Marc Lau

"There is a good chance, but it is probably too early to tell. Indonesia is the world's fourth most populous country. Like China and India, it is also urbanizing rapidly. In fact, it is further ahead of both countries, with more than 50% of its population already living in towns and cities. The huge consumer market has been a key driver of growth and offers tremendous opportunities. If the country continues to improve its business environment, it could be an attractive investment destination." - Pak-Seng Lai

"I believe so. With the impending investment grade sovereign rating, we expect cost of capital to further improve. The government reformation on land and labor laws will also set the stage for a major industrial development over the next decade. We are also blessed with the demographics that will spur GDP growth without much reliance on exports. Political stability is also another factor contributing attraction to Indonesia. And as I mentioned earlier, Indonesia remains a key raw material supplier to the region." - Veronica Lukito

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• Topics
• People
• GPs
• LPs
• Southeast Asia
• Saratoga Capital Group
• Axiom Asia Private Capital
• Ancora Capital Management