Jakarta: Goldman Sachs and Morgan Stanley are each in talks to buy an Indonesian brokerage firm to expand their reach into the booming capital market of Southeast Asia’s biggest economy, sources said.
Goldman is in talks to buy Tiga Pilar Sekuritas and expects to complete the acquisition before the end of 2011 as it aims to start a local brokerage operation next year, two sources with direct knowledge of the deal told Reuters on Monday.
Goldman does not have an underwriting or broking licence in Indonesia, while Morgan Stanley secured an underwriting licence in 2008, but is seeking a bigger presence through a full-fledged broker licence.
Both banks plan to add research analysts as well as sales and trading staff to the brokerages next year, while Goldman could also add investment bankers, as they seek to win fees from equity offerings and debt deals, the sources said.
“I think this signals a positive view on our capital market ... It has really become an important destination for global investment banks,” said Winston Sual, who manages nearly $1 billion in funds at Panin Sekuritas in Jakarta.
“This will give more competition for fees among global bankers like JPMorgan and Credit Suisse.”
The banks’ plans in Indonesia, which has seen its stock market hit records this year on surging foreign investment, follow moves by Nomura Holdings and Citigroup to ramp up equity research teams in Jakarta this year to challenge leaders Credit Suisse and Deutsche Bank .
Investment interest in the G20 member is set to rise again next year, when Indonesia hopes to get an upgrade by Fitch Ratings to an investment grade sovereign rating that will put it alongside top emerging BRIC nations such as Brazil .
Goldman has completed due diligence for Tiga Pilar and both parties are now negotiating the deal structure and valuation, said one of the sources, who all declined to be identified.
“Goldman has already asked Tiga Pilar to start looking for prospective staff and bankers as a precondition before they complete the deal,” said the source.
No financial details were immediately available. Officials at Tiga Pilar and Goldman declined to comment.
The Tiga Pilar deal size is likely to be small as Goldman is only seeking to buy the operating licences that the deal will provide. It will need to at least inject the 50 billion rupiah ($6 million) in licence costs and required brokerage capital.
Tiga Pilar, partly owned by the family of Tan Pia Sioe, traded 445 billion rupiah by stock value in the first six months of this year, ranking it 102 out of 117 active brokerages, according to stock exchange data.
The IDX composite index has jumped over 5% so far this year, topping the list of gainers in Southeast Asia.
Morgan joins party
Goldman’s rival Morgan Stanley has also identified a target brokerage firm to acquire and hopes to conduct due diligence this year in order to start operations next year, said three other sources with direct knowledge of this deal.
“Talks are ongoing. It is still early to mid-phase. Morgan Stanley is talking to people,” said one of the sources.
Sources declined to give the name of the target brokerage and no financial details were available. A Morgan Stanley spokesman declined to comment.
The talks are aimed at either buying a brokerage to get their seat on the stock exchange or to buy a seat from an existing brokerage, one of the sources said.
A full broking licence would allow the firm to cover the secondary side of sales and trading as well as research, the source added.
Citigroup bought Indonesian brokerage Republik in 2010 and this year added bankers and analysts, including veteran analyst Ferry Wong from Macquarie as its new head of research.
Citi was not in the top five for underwriting Indonesian equity deals last year but this year has surged up the league table to rank second among global banks, behind Deutsche.