Private equity firms display growing interest in Indonesia

After the recent re-election of President Susilo Bambang Yudhoyono, foreign investor interest in Indonesia has risen with confidence that improved political stability will help boost Indonesia's strong economic growth. Notably, CVC Capital Partners has struck an Rp7, 200 billion (US$770 million) deal in January to acquire Matahari Department Stores, Indonesia's leading department store chain. In fact, Fitch has recently given Indonesia a vote of confidence as it lifted its ratings to one notch below investment grade.

This deal propelled Indonesia into third place globally in terms of the size of private equity deals so far in 2010, with a 10.7% share. By contrast, in 2009 Indonesia only had a 0.1% share and its US$98.6 million worth of deals being far lower than deals worth over US$1 billion in both China and India. Nevertheless, private equity firms will still be keeping a close eye on whether planned government reforms continue or stall. There is also the risk of the central bank failing to control inflation. Although the rupiah gained 17% in 2009, any loss of stability could lead to depreciating earnings for foreign investors.