Part 1 News: Growing Too Slow

2 deal makers lead charge into Indonesia

Regional News

They have helped invest nearly $1 billion in place once seen as too risky

Sigit Prasetya is a smartly dressed mathematics whiz, a straight talker and a man dialed into wealthy circles.

Patrick Walujo is a U.S.-educated engineer known for political connections, dogged persistence and a passion for tennis.

The two are widely seen as the main reason why the private equity firms CVC Capital and TPG Capital Partners have jumped ahead in the race to invest in the vast and untapped markets of Indonesia, the biggest economy in Southeast Asia.

Since 2005, there have been 18 private equity deals in Indonesia, with $1.8 billion in cash invested, according to Thomson Reuters. CVC and TPG are responsible for more than half of the spending, investing in companies like the retailer Matahari Department Store and the coal group DeltaD unia Makmur.

Dwarfed by neighbors like China and India, Indonesia is a tiny fragment of the Asia buyout market. Still, with competition heating up, global firms are looking for speedy growth and uncrowded markets.

‘‘It’s definitely hot, and we think that there’s going to be more capital-chasing deals in Indonesia,’’ Mr. Walujo said last week at the SuperReturn conference in Hong Kong. ‘‘Competition is going to heat up, but so far this has not translated into price inflation for the deals that we do.’’ Indonesia has long tempted investors.

But its reputation for red tape and corruption has often overshadowed the allure of its 240 million people with a fast-growing youthful middle class and rich natural resources.

That middle class is snapping up smartphones and motorcycles, as annual growth surging at nearly 7p ercent drives a consumer boom.

A recent report from HSBC said Indonesia’s per-capita gross domestic product —the equivalent of $3,000 in 2010 —could reach $20,000 by the late 2030s, giving Indonesians the same spending power as Koreans.

Risks abound in Indonesia, however.

The growth potential that excites investors is tempered by critics who believe the country stillhas away to go to fix fiscal problems and achieve economic successthat puts it on par with larger countries.

Those risks have been on display lately, as the benchmark Indonesian stock index has dropped, plummeting 10.7 percent last week alone.

Such risk factors have played a role in keeping foreign funds out of the country, regardless of its economic promise. And so far, while private equity money has gone into Indonesia, it is not yet clear how much of it will come out in the form of profits for the buyout firms and their investors.

But for TPG and CVC, the opportunities outweigh the risks.

TPG, based in the United States and founded in 1992, is the only global buyout firm to work with a local Indonesian group. The firm moved to deepen its ties there this month, when it struck a deal with Northstar Pacific, acquiring an undisclosed stake in the firm.

And sources say all the deals that TPG and CVC have done in Indonesia come down to two people: ‘‘Sigit’’ and ‘‘Patrick.’’ CVC, a London-based firm founded in 1981, has 37 investment professionals around Asia, all speaking the languages of the markets they deal with.

‘‘If you want to be successful, you can’t just fly in and fly out,’’ said Maarten Ruijs, the firm’s Asia managing partner and chief information officer. ‘‘If you look at our operations, I am the only person who is not from Asia.’’ Mr. Prasetya, the head of CVC’s Singapore office, has quietly become a star deal maker with a string of regional moves, beginning in earnest with the purchase last year of a controlling stake in the retailer Matahari from the Lippo Group for $790 million in the largest Indonesian private equity deal.

He now has a portfolio of investments that include RCBC Bank in the Philippines, the gaming asset Magnum in Malaysia, and Amtek Engineering in Singapore.

With Matahari, the Indonesian made a mark. It was not just that the structure was untested —it was the first leveraged buyout in Indonesia —but also that CVC earned an inside line to one of Indonesia’s most powerful and influential families, the Riyadys, owners of the Lippo Group.

Mr. Prasetya, a former Morgan Stanley banker who joined CVC in 2007 from Henderson Private Capital, declined to be interviewed. He graduated summa cum laude in mathematics before earning a master’s degree in business administration from the University of New South Wales in Australia.

TPG’s partnership with Northstar dates to 2006, when critical changes in the post-Suharto era pushed Indonesia onto a growth path, luring foreign investors back to the country after the catastrophic economic collapse of 1997-98.

Mr. Walujo co-founded the firm in 2003 after an investment banking career that included stints with Goldman Sachs in London and New York.

But the two firms are not without competition. In fact, the Carlyle Group has competed on several deals in Indonesia, but has yet to clinch.

There are also an estimated two dozen home-grown firms chasing transactions.

Both TPG and CVC have a long-established presence across Southeast Asia, with investments in Vietnam, the Philippines and Malaysia.
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By: Janeman Latul and Stephen Aldred, Reuters
Source: The International Herald Tribune, Sept. 29, 2011
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