Q&A: Ancora Capital's Veronica Lukito

Q: What do you think are the biggest challenges facing PE investors in Indonesia right now?

A: In Indonesia there are a lot of challenges with regards to infrastructure or rather the lack of investment in that sector. One of the main issues is that there is a lot of overlap with regards to the policies that are in place and a lack of detailed regulation and implementing of regulation. This has especially been the case with those regulations which have recently been revised, such as the mining law. Dealing with bureaucracy and policy-making certainly is still a key challenge for most investors. That is why it is important for foreign players to work with local investors who understand the terrain much better and are able to navigate any issues that may arise. The last challenge is in finding skilled labor. Despite the large population, the skill sets available are still fairly limited in particular in industries.

Q: So which sectors are you excited about at the moment?

A: In the consumer sector there is nothing really new, the reason being that everything is in growth-mode right now. If you are talking about well-established, scaled players, there is only a handful and they have been transacted in the last three to four years. All the other opportunities are in much smaller-sized companies. I expect in the next three to five years these companies will become sizeable, so the consumer sector will remain very attractive.

Q: Do you anticipate valuations in Indonesia will remains as high as they have been?

A: I think the issue of valuations depends on kind of deals we are talking about. We have traditionally been performing well in capital markets among our peers - our current price-to-earnings (P/E) ratio is probably around 15 to 16. Larger-sized transactions will follow capital markets trends but that is less the case with smaller sized transactions. I would say that, with what went on in Europe last year, there has been a rebalancing of people's expectations. A lot of Indonesians, in terms of investment sentiment, are driven by and large by commodities. With the correction in commodity prices in the past year, people understand that valuations will not perpetually escalate and so I think expectations are more realistic. Yet, there are always going to be business people who expect off the chart numbers.

Q: How sustainable do you think the current hype over Indonesia is?

A: Indonesia has been in the limelight in the last year-and-a-half and that has had an effect on other countries in the region too, with Myanmar, in particular, becoming flavor of the month. In the private equity industry, as far as I understand, people who had been successful in China and then tried to get into India and failed are now looking to Indonesia.Having said that, the kind of money that has been raised in the last two years is nowhere near what was raised in India. Maybe it is because people are cautious and that is good for the PE market. I hope ourselves and the other incumbents can provide leadership to the guys coming in. With that, I think the Indonesian private equity industry will be sustainable and can generate the kind of value-add that is expected.

Q: What is the extent of the competition for deals in Indonesia's mid-market?

A: In our space I would say the pie is still large enough. If you are talking about large-size deals there is lot more competition out there simply because the supply of those transactions is limited. Sectors like energy and infrastructure are crowded by large players competing with sovereign wealth funds, large multinational corporations, state owned companies. In our space the pie is still very large.

Q: Looking at the wider region, there has been a lot of talk recently about greater ASEAN integration. What do you think will this mean for Indonesian PE?

A: Economically, Indonesia depends a lot on neighbors like Singapore and Malaysia. There is great reliance on our labor force. So far we have not been a major exporter as a country and we hope that will develop in the next five to ten years. We need to overcome internal hurdles before we address the issue of integration but I think integration is positive in terms of the economic flows between countries.

Q: What is your outlook for Indonesia?

A: Indonesia's growth trajectory is tracking upwards. There is an election coming next year, what does that mean for our market? Probably not that much, but in terms of exits it could have some impact. Some people might think this year will not be the best time to sell so they will wait until things settle down on the election side so they can get a better valuation. Other than that, the exit market remains to be predominately trade sales.

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• Topics
• Southeast Asia
• Consumer
• Industrials
• GPs
• Indonesia
• Ancora Capital Management
• Exit
• Consumer
• Commodities
• Infrastructure