The resurgence of investor interest in Indonesia during the past three years has excited investment banks and prompted a minor frenzy of activity as they jostle for position in a market that many bankers once sneered at.
Perhaps the clearest sign of Indonesia’s prominence in investment bankers’ plans is the intention of Goldman Sachs to spread its tentacles in the country. The US bank doesn’t have much of a history in Indonesia, but news emerged this week that it is in talks to buy Tiga Pilar Sekuritas, a Jakarta-based brokerage, which would allow it to get involved in the local equity market, both in terms of underwriting issuance and buying and selling stocks for clients.
“Indonesia presents an important opportunity for Goldman Sachs,” said Brooks Entwistle, Goldman Sachs’ chairman of Southeast Asia, during an interview last month. “Given the size of the population, the diversity of the economy and its place within Asia, Indonesia is one of the firm’s top growth market focuses globally.”
Goldman Sachs opened an office in Indonesia in 2008 and has steadily dedicated more resources to the country.
Its focus is on investment banking, equities, fixed income and foreign exchange, but “we also see opportunities in other areas as we continue to grow our business,” Entwistle added, without providing details.
Southeast Asia’s biggest economy offers vast business opportunities, as long as it continues its trajectory towards increasing affluence and better governance.
In its report, Global Growth Generators: Moving beyond emerging markets and BRIC, Citi identified Indonesia as one of 11 countries with the most promising growth prospects. In the short-term, it concluded that a minimum gross domestic product growth target of 6.5% for this year, driven by strong domestic demand and commodity exports, and increasingly fuelled by investment, means that the country should attract foreign business.
Credit Suisse is the historic market leader and for years held an unquestioned stranglehold on banking in Indonesia.
“Indonesia is critical to Credit Suisse’s regional strategy for investment banking and it’s a key growth market for the bank globally,” said Charles Gunawan, co-head of investment banking, Indonesia, at Credit Suisse.
Indonesia’s importance to Credit Suisse’s is indicated by the elevation in 2009 of its country boss, Helman Sitohang, to co-head of investment banking for the whole of Asia Pacific and then to chief executive for Southeast Asia last year.
Gunawan was poached from Goldman Sachs in 2010, and other senior additions have been made to the investment banking team during the past year.
Indeed, Credit Suisse has the largest on-the-ground presence of any international investment banking business in Indonesia and is the only foreign investment bank with three managing directors in Jakarta.
Credit Suisse has spent more than a decade building its franchise in the country, and Gunawan insisted that “we have continued to invest, for instance in our equity brokerage operation, to ensure that we maintain our dominance”. The bank built its equities operation from scratch at the end of 2007 to become the leading foreign broker on the Indonesia stock exchange in 2010.
“One of the biggest lessons we have learned through the cycles in Indonesia is that you need to be there for your clients at all times and be able to help them meet their needs in difficult markets as well as supportive ones,” said Gunawan.
Long-term commitment is Citi’s boast too. The bank has been operating in Indonesia since 1968 and now has 22 branches across major cities, and is banker to many multinational companies that plan to expand in the country.
Citi intends to “continue to invest for growth across its businesses in corporate, commercial and investment banking as well as its consumer banking operations,” said Tigor Siahaan, acting Indonesia country head at Citi. The bank has almost 5,000 employees in the archipelago. In August 2010, Citi gained a seat on the Indonesia stock exchange, which gave it an equities platform in addition to its existing foreign exchange and fixed income capabilities. Citi’s equity research team was further strengthened by the appointment of Helmi Arnan as country economist.
Citi has had its problems this year, notably the sanctions imposed on it by Bank Indonesia in response to alleged embezzlement by an employee in its wealth management division. Its credit card and retail businesses is likely to suffer as, by association, might those of other foreign banks with extensive commercial banking franchises but, Citi management clearly continues to see growth potential in its investment banking operation.
Deutsche Bank is another firm offering a broad range of commercial and investment banking services, with roots in the country dating back to 1969.
Its history of commitment “differentiates us from a number of our global competitors who attempt to cover Indonesia from hubs elsewhere in the region,” said Suresh Narang, Deutsche’s chief country officer for Indonesia. “And our overall investment in Indonesian operations has increased significantly over the last five years”.
The bank employs around 300 professionals in its offices in Jakarta and Surabaya, and it “expects to commit further resources to build its investment banking presence in Indonesia”.Its key business lines in Indonesia include transaction banking, corporate finance, capital markets and sales and trading, and equity research.
It already ranks among the top-five overseas banks in Indonesia in debt and equity capital markets, and M&A advisory.
While UBS has shown signs of contracting its operations elsewhere in the world, its presence in Indonesia is likely to expand even further.
“Indonesia is increasingly important to UBS from a regional strategic perspective; the country is a key focus and is no longer a satellite. Instead, we aim to offer the same product suite as we provide for business in China, India and Singapore,” said Rajiv Louis, country head, and head of investment banking, Indonesia at UBS.
UBS’s Jakarta securities business is made up of sales, trading and research teams, and five investment bankers — the most after Credit Suisse. UBS has consistently ranked on Dealogic among the top three for investment banking in Indonesia during the past decade, with a particular emphasis on cross-border M&A deals with multinational companies, and debt and equity capital market transactions for state-owned enterprises. Between 2006 and 2007, UBS completed around 12 to 13 deals a year; in the first six months of 2011, the bank closed 10 transactions.
“We are now looking at how we can broaden our offering in the country,” said Louis. The recent surge in the number of deals reflects one important development: it’s only this year that the bank has started to deploy its balance sheet for its clients.
Another obvious step would be to get a commercial banking licence. The most likely route would be to buy one from a small, inactive domestic lender, rather than apply directly to Bank Indonesia and be forced to assign Rp2 trillion ($225 million) of capital to its operation.
Asset management is another avenue to explore as the bank already has a wealth management representative office.
For years, when we questioned why rival banks to Credit Suisse didn’t have a bigger investment banking presence in Indonesia, the answers were always a touch snide, along the lines of: “We can’t bank some of the families that they can.”
Evidently, Indonesian family businesses have either cleaned up their act or the country is now offering more varied opportunities.
It is clear now that Indonesia will present an increasingly competitive landscape for investment bankers in the years ahead rather than being a peripheral interest for Singapore offices. That means bankers will need to acclimatise to the many challenges of living and working in Jakarta.
And when bankers don’t win mandates, they no longer will be able to argue that they don’t have a presence in Indonesia. They do now.
A version of this story first appeared in the September 2011 issue of FinanceAsia magazine