The Indonesian government has acknowledged foreign investors’ concerns about legal safeguards, risk mitigation and corruption as it looks to tap Australia’s $3.4 trillion superannuation system to finance infrastructure and other development.
“There is a real keenness to get foreign capital – including Australian capital – into the country,” Assistant Treasurer and Financial Services Minister Stephen Jones told The Australian Financial Review.
A new light rail station in Jakarta. Opportunities are opening up to foreign investors in infrastructure. Bloomberg
“There is also a realistic understanding of some of the apprehensions that Australian businesses have about investing in the country.”
The assistant treasurer was among a delegation of Australian super funds, advisers and other institutional investors to meet senior ministers in President Joko Widodo’s government this week as part of a push by the Albanese government to boost what Mr Jones called a “severely underdone business-to-business relationship”.
Indonesian ministers and officials, he said, “were up front about saying ‘we know we have issues around corruption perceptions and corruption realities, around efficiencies and dealings’.”
“The establishment last year of the Indonesia Investment Authority (INA) was an attempt to deal with some of those,” Mr Jones said.
The Australian delegation met the INA in Jakarta and also representatives from the Canadian pension funds investing in toll roads alongside the INA. Those discussions reinforced the importance of extensive due diligence in Indonesia, said Greg Combet, the chairman of IFM Investors.
Indonesia’s Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan with Assistant Treasurer Stephen Jones this week in Jakarta.
“One of the key lessons from the Canadians is the amount of time you need to invest to develop the relationships, understand the setting, and have confidence about the macro environment in Indonesia,” Mr Combet said. “They have been looking at toll roads [in Indonesia] since 2017.”
He said the delegation was “very encouraged by the macro and reform environment in Indonesia but was also focused on the sustainability of those reforms, especially given there will be a new president in 18 months’ time”.
“It would be wrong to say we (are) about to dive in, but we’re starting to get a better understanding of what’s necessary,” Mr Combet said.
The INA was “very clear about what it is trying to do”, said AMP Capital’s global co-head of core infrastructure, Michael Bessell.
“This is a sovereign wealth fund that’s been set up to facilitate foreign investment in infrastructure that’s necessary to further Indonesia’s economic growth.
“When we have invested in emerging markets like India and China we’ve always needed good partners to help navigate, and the INA structure, where you would be investing alongside a government entity, looks attractive to me.”
Regional players say the removal of restrictions on foreign ownership in late 2020 has prompted a surge of interest in Indonesia, particularly in critical infrastructure and clean energy. This interest is starting to translate into deals.
Macquarie’s $610 million investment in Bersama Digital Infrastructure in May is one example, notes Nicola Yeomans, a partner at King & Wood Mallesons in Singapore. The firm acted on the Bersama transaction.
She said there had been foreign investors active in Indonesia before a series of reforms by Mr Widodo to make the country more attractive to overseas capital. The reforms included the establishment of INA, labour reforms and the removal of laws blocking foreign takeovers of Indonesian companies in some sectors.
“It was incredibly complicated [before then], and many investors are not comfortable with that sort of regulatory risk. Now that’s gone in many sectors, you’re looking at a lot more deal certainty,” Ms Yeomans said.
Preferential treatment, including tax incentives, meant many state assets have landed in listed companies, making state-owned enterprises shareholders in market-traded entities.
“There are a whole bunch of listed companies with great assets in Indonesia. Suddenly, the takeover regime is hot in everyone’s heads,” Ms Yeomans said.
Fund managers involved in this week’s visit were keen to hear more about risk mitigation in the emerging economy, she said.
“Given the wide range of licences required from different agencies and different levels of government in Indonesia for many projects and operations, detailed on-ground diligence is critical,” Ms Yeomans said.
The INA advised an international arbitration clause would be standard and this is something private capital would insist on, she said.
Treaties also provide some protection. Indonesia is a party to the ASEAN Comprehensive Investment Agreement, the ASEAN Australia New Zealand FTA and the Indonesia-Australia Comprehensive Economic Partnership Agreement. These protect against acts by governments all down the line, from central to provincial and local.
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