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Indonesia’s deal market needs a government boost

Indonesia’s deal market needs a government boost
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First Published: Thu, Apr 26 2007. 02 56 PM IST
Updated: Thu, Apr 26 2007. 02 56 PM IST
By Brian Kelleher, Reuters
JAKARTA: Indonesian M&A and equity capital markets activity could get a jump start if the government pushes more privatisation and industry consolidation, but such changes seem a long time coming, market watchers say.
The country’s investment banking business is off to a steady start this year with $21 million in revenue, compared with $102 million for all of 2006, according to market data firm Dealogic.
But big acquisitions and equity offerings, which carry higher fees than debt deals, have tailed off as the government has been slow to sell state assets and the market increasingly exists in the shadow of China and India, and even smaller markets like Vietnam.
“There hasn’t actually been a huge flow of deals,” said James Bryson, a director at fund manager PT HB Capital Indonesia and a former equities executive for Merrill Lynch .
Equity issuance dropped to $1.1 billion last year, compared with $2.2 billion in 2005. M&A activity was only $5 billion in 2006, compared with $11 billion a year earlier.
“Foreigners want to tap into this market. The question is at what price, but private equity and strategic players are looking for acquisitions,” said Rizal Gozali, managing director in Indonesia investment banking for Credit Suisse, citing resources and oil and gas as key sectors.
“There’s always a problem of no one selling,” he said.
One reason for the lack of deals is that a high percentage of companies are run by families who are unwilling to sell the businesses they have built, bankers said.
Credit Suisse led all banks in Indonesian revenue last year with $29 million, followed by Swiss rival UBS and local firm PT (Persero) Danareksa, Deutsche Bank and JPMorgan .
Indonesia’s economic future is looking bright as it further emerges from the wreckage of the 1997/98 Asian financial crisis.
The stock market is up 70% from the beginning of 2006, the economy is growing at 6 % and inflation is hovering around 6 %, compared with 17 % in 2005.
“On the corporate banking side I’m not aware of any bank that’s not happy with the way things have been this year and last year,” said Gita Wirjawan, the head of Indonesia for JPMorgan.
Many people in the market are pressing the government to take advantage of the good times to enhance stability, and steps in that direction could lead to deals down the road.
“The government needs to push deregulation, infrastructure development and it needs to invest in key sectors,” said Mirza Aidtyaswara, head of Indonesian equity research for Credit Suisse. “There is pressure from the central bank for banking consolidation.”
Foreign banks have been active buyers in Indonesia, although deals have been relatively small, like Industrial & Commercial Bank of China’s acquisition of PT Bank Halim Indonesia, which had assets of only $50 million at the end of 2005.
Outside of the banking space, 2007 has seen one significant deal, with India’s Tata Group buying a stakes in two coal mines from PT Bumi Resources Tbk for $1.3 billion. The country’s largest M&A deal last year was only worth $337 million.
“If you look at what sectors have M&A potential, resources is still the hot sector, especially palm oil plantation and metal-mining,” said Benny Surjadharma, head of global clients/investment banking, Indonesia, for ABN AMRO .
Investors and bankers are urging the government to issue new tax rules encouraging private companies to list their assets, as many Indonesian tycoons want to avoid the scrutiny -- and potentially higher taxes -- that comes with an IPO.
The government does have a list of assets expected to eventually hit the markets, including PT Bank Nasional Indonesia (BNI) Tbk, while bankers dream of a day when state oil firm Pertamina will be privatised.
Plantation company PT Sampoerna Agro Tbk is planning an IPO for June, while state electricity company PT Perusahaan Listrik Negara plans to list one of its power units.
Toll road operator PT Jasa Marga is planning to raise $330 million in the second quarter and a source said PT Indo Tambangraya Megah, a unit of Thailand’s Banpu PLC, could raise $300 million this year.
Indonesia’s last IPO of significant size was the $276 million listing of PT Excelcomindo Pratama in September 2005.
“In the past few years, large IPO issuance has been mostly from government privatisations. More and more it will come from the private sector,” said Surjadharma, again naming resources as a likely industry.
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First Published: Thu, Apr 26 2007. 02 56 PM IST
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