White & Case has been active in Indonesia since the late-1970s, building a unique institutional knowledge and understanding of the country’s business environment. The international law firm has advised on a vast range of transactions for the government, state-owned enterprises, international banks, private equity funds and large Indonesian companies.
Charlie Wilson, an M&A partner with White & Case in Singapore, leads the firm’s Indonesia practice. He has 14 years experience in Indonesia, and lived in the country for eight years. Wilson discusses the investment opportunities and challenges in one of Asia’s fastest growing economies.
How has the investment environment changed in recent years?
There has been a significant increase in foreign direct investment across all major industrial sectors. A confluence of factors has driven this renewed interest. The economy is growing rapidly, the transition to a democratic polity has been successful and the country has received the stamp of approval from leading analysts, consultants, publications, and of course, the rating agencies.
In December last year and January this year, rating agencies upgraded Indonesia’s credit status to investment grade, reflecting Indonesia’s strong economic growth. We were privileged to represent the Republic of Indonesia in the first deal out the gate in 2012, post-upgrade – a $1.75 billion sovereign bond offering in January 2012. So you can conclude that investment and credit committees have become more comfortable with Indonesian country risk and, as a result, we believe that Indonesia’s prospects look bright.
Do you think governance and legal transparency are improving?
The legal environment remains challenging, but it is improving. Due diligence and financial analysis take time, and even after exhaustive care, problems can still arise. But, there is a cultural change underway, demonstrated by the power of the Corruption Eradication Commission, the vigilance of a free and energetic media, and by the local banks’ insistence that the companies they lend to have effective corporate governance practices in place. In-house counsels and company secretaries are more common now and they have increasing influence.
Why isn’t there more M&A activity?
At first glance, that does look surprising as there are so many potential buyers. But, the reason is that there are often few compelling reasons to sell. A tycoon who has built up a successful business, and who is keen to pass on an impressive legacy, would need a particularly attractive investment alternative to the enterprise he has worked so hard to create. In addition, local companies and individuals are closer to the domestic market and inevitably identify opportunities faster than investors based in Hong Kong, Singapore or elsewhere.
What has been White & Case’s role in the M&A business?
Of course, much of our work is confidential, but there are a few prominent public deals that I can highlight. For instance, we recently advised both Haier Group on the acquisition of Sanyo Electric’s white goods sales divisions in Indonesia (and elsewhere) and CLSA Clean Resources Asia Growth Management in its subscription to exchangeable bonds issued by Sari Wangi AEA, the largest exporter and manufacturer of tea in Indonesia.
Previously we advised a group of PT HM Sampoerna Tbk’s shareholders in the sale of 40% of the company to Philip Morris for $2 billion, which triggered a public offer for the remainder of the shares leading to a total transaction value of about $5 billion. This remains a landmark deal and it put Indonesia back on the investment radar. We have also advised on many acquisitions and disposals by global private equity funds, multi-national companies and Indonesian conglomerates.
What future investment trends can you identify?
Indonesia is rich in natural resources, and this will always attract interest from investors and multinational companies. Oil and gas, coal and palm oil are key commodities, although to some extent, opportunities for potential acquirers have declined as valuations have risen. Perhaps more exciting is the wide-ranging consumer sector. Almost anything that appeals to the country’s fast-growing middle class with its enhanced spending power fits into this category. These include electronic goods manufacturers, retailers, construction and financial services.
Increasingly, there will be more cross-border deals with companies and funds from other Asian countries becoming more active, as well as the usual global private equity players. Transaction structures are likely to be more conservative, made up of less leverage and more equity, with a focus on smaller investments. The future promises to be busy and varied.