PE seeks post-election certainty in Indonesia – AVCJ Forum

"There is a lot of wait and see before taking the plunge," Veronica Lukito, CEO of Ancora Capital, told the AVCJ Indonesia Forum in Jakarta yesterday. "A lot of people have it in the back of their minds that the second half of the year will be more fruitful."

Edward Sippel, Asia co-head of TA Associates, drew parallels with other markets, noting that his firm often delays investments due to elections.

TA bought two businesses in Australia last year and deliberately closed the deals after the federal election and it is doing the same in India, which goes to the polls in April. The firm is also a big investor in US healthcare and held off on investments ahead of the 2012 presidential election in which healthcare reform was a prominent issue.

"The election has conditioned us a little bit to the timing of investments," Sippel said of Indonesia. "I don't think anything controversial will happen in the election but having that certainty is always useful as a foreign investor."

According to AVCJ Research, private equity investment in Indonesia has slowed in recent years, although it is a relatively shallow market so large deals move the needle. In 2010, investment came to $1.4 billion and $967 million the following year, before falling to approximately $600 million in both 2012 and 2013.

Rising valuations and the subsequent period of economic uncertainty last year are key factors.

Indonesia's economic problems started when the commodities cycle turned in late 2011. Exports, of which natural resources account for more than half, peaked at $53.6 billion in the third quarter of 2011 but then embarked on a general downward trend. As exports fell, imports remained resolutely high. Indonesia slipped into a trade deficit in the second quarter of 2012.

Then in May of last year talk of quantitative easing in the US shook emerging markets. Indonesia's current account deficit, already struggling due to weak commodities exports, rose from -1.1% at the end of 2011 to -4.4% in the second quarter of 2013. The Jakarta Composite Index (JCI) slumped and the rupiah went into freefall, losing more than a quarter of its value against the US dollar over the course of 2013.

The government has taken steps to stabilize the economy and global concerns about emerging markets have eased.

Cyril Noerhadi, senior managing director at Creador, suggested that the now stabilized JCI could turn upwards, noting this happened in the wake of each of Indonesia's last three elections. In 1999, 2004 and 2009, the JCI gained 79%, 45% and 87%, respectively, he said.

"There will be a new cabinet, new president and new parliament members, and new hope that government will be more decisive in terms of infrastructure that will fuel and mobilize the economy, especially goods and services," Noerhadi added.

Indonesia will hold parliamentary elections on April 9. Parties or coalitions that control at least 20% of the seats or win 25% of the votes will then be eligible to put forward nominees for the presidential election, which takes place in July.

Indonesia has emerged as the poster child for Southeast Asia private equity in recent years, pushing valuations upwards. Tom Lembong, co-founder and partner at Quvat Management, said that the market has now corrected, creating a more attractive investment environment. He also expects the current economic transition to stimulate deal flow.

"Whenever you have volatility and turnover it creates losers and winners, new areas of growth, old areas of contraction and consolidation. New areas of growth require growth capital, areas of consolidation or contraction require assistance and consolidation capital," Lembong said.

"However, Indonesia will remain a bit crowded because even though the market has expanded hugely the interest had expanded even more hugely."

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• Topics
• Southeast Asia
• Investments
• Indonesia
• Growth capital
• buyout
• Southeast Asia
• AVCJ Events
• Ancora Capital Management
• Quvat Management
• TA Associates