Emma Connors, Singapore/Jakarta – Two well-known global institutional investors have backed Indonesia's new infrastructure-focused sovereign wealth fund, in what could be seen as an early win for President Joko Widodo's efforts to break with the country's protectionist past.
Caisse de depot et placement du Quebec (CDPQ), the Canadian public sector retirement and insurance fund manager, and Dutch pension provider APG Asset Management (APG) have each committed $US1 billion ($1.32 billion) to the recently established Indonesian Investment Authority (INA).
Unlike older sovereign wealth funds, which invest resources or export revenue, the INA is more like an investment platform on which government cash or equity can be invested in new infrastructure alongside foreign contributors.
The model is similar to the "asset recycling" that enabled the NSW government in Australia to plough $8 billion into infrastructure projects by leasing Transgrid to a consortium that included ADIA and CDPQ, two of INA's initial partners.
Those who know the country well, including former Australian ambassador Gary Quinlan and Singapore-based economist Manu Bhaskaran, say this reform push could be a turning point for the country, particularly if the INA succeeds in its bid to become a $US100 billion fund.
Despite the endorsements and the familiar structure, the INA has failed to generate much interest from Australian superannuation funds or other big institutional investors. Indonesia, despite its relative proximity, remains outside the geographical and risk remit of Australian institutions.
Hostplus has expressed interest in investing in Indonesia, but chief investment officer Sam Sicilia said the INA was not on its radar. Rest, Australia's second-largest super fund, said it was always looking for investment opportunities, but holdings in Indonesia represented "a very small part of our portfolio".
Ambitious reform agenda
However, the involvement of APG, with $US921 billion under management, and CDPQ, with $US391 billion, might help generate more interest.
The INA's unique structure was legislated into being last year, part of President Joko's ambitious reform agenda designed to overcome the historic tendency towards economic nationalism.
INA expects to spend an initial $US3.75 billion on toll roads from state-owned enterprises. The calibre of the investors involved in the first tranche of operations was important, said INA chief executive Dr Ridha Wirakusumah.
"Indonesia's foreign direct investment flow has been stagnant. We want to show credible investors coming in to participate in Indonesia's economic development and making money at the same time," Dr Ridha told The Australian Financial Review.
"We hope other investors will feel a lot more comfortable after we have shown the world that we can do this in the most professional manner.
"Our gain will be their gain, our pain their pain. What we want to do is create value by running the assets we acquire better than they were previously run."
'This platform is like a partnership'
By using the INA as both an intermediary and an adviser, assets can be moved out of state-owned enterprises in a way that is politically palatable, with ownership and control staying within Indonesia. Global investors say the INA structure should help to reduce political risk.
President Joko's government has allocated 15 trillion Indonesian rupiah ($1.35 billion) to the INA so far, and another 60 trillion rupiah is likely this year, split between tax revenue and equity in state-owned enterprises.
"Once I have it, it's up to me as to whether we sell the equity or not. It's likely we will have to monetise it because the needs are quite big," Dr Ridha said.
Indonesia's deputy Foreign Minister, Mahendra Siregar, recently raised American investment in the INA with his US counterpart. Dr Ridha said there had been no shortage of interest since CDPQ, APG and ADIA came on board.
The three have signed up with INA to create an investment platform that will explore opportunities in Indonesia's toll-road assets.
Indonesian President Joko Widodo inspects a toll-road project under construction in Lampung, Sumatra, early in his first term. Bloomberg
AIDA, CDPQ and APG will each tip in $US1 billion and INA will stump up $US750 million. INA is now on the hunt for assets and possibly operators to run these assets.
"This platform is like a partnership," said Dr Ridha, who is also chairman of the INA board of directors.
This first platform will be investing only in toll roads that are operational and are generating returns.
"'We wanted to show the world that we're bringing the crown jewels, not high-risk projects," said Dr Ridha.
So far, though, the INA has not had any conversations with Australian investors.
Australian investors are more comfortable putting money into OECD countries that outrank Indonesia on Global Transparency's International Corruption Index.
"I have been talking to, maybe, 20 different ambassadors and many sovereign wealth funds and pension funds. Once we announced the toll-road platform, we had many people call in because it looks pretty good... but no-one from Australia yet. I think it's probably only a matter of time."
Rating agencies are also paying attention. The INA's "level of success in mobilising capital, channelling it into projects and executing on them" will be a "close point of observation for us" in coming years, said S&P Ratings director of sovereign and international Andrew Wood.
Mr Wood said President Joko's government had been "very communicative" on the transparency, accountability and management of the INA and those were good signs, especially "when you have a fund that is mobilising a high quantum of funding".
Over Zoom from his office in Jakarta, Dr Ridha, a career banker who has worked for KKR and Citibank, was clear about how the INA would attract investors.
"For me, focusing on building this properly, with a very strong foundation, is a heck of a lot more important than worrying about whether it's $US100 billion or $US50 billion or $US200 billion. Some people are paid to dream, I'm paid to execute," he said.
"People are playing close attention to the structure [of the toll road platform] but the more important thing is that it will show credible investors can come in, participate in the nation's development and make money at the same time.
"INA is not a broker. It's not about just bringing in the money and then matching it with the assets. We want to create value by managing those assets better than before."
That means buying assets from the state-owned enterprises (SOEs) that built them. How this will be negotiated is delicate, especially given many of the SOEs took on a lot of debt in Mr Joko's first term and remain highly leveraged.
Dr Ridha is clear that INA will not take on any SOE debt.
"INA's mandate is pretty far and pretty wide. We can plan, we can buy, we can invest in Indonesia – and elsewhere, if we thought it made sense – but in the first few years we will be mainly using our equity to buy.
"We are not going to get sucked into trying to solve somebody else's debt issues."
Indonesia's own pension fund, BP Jamsostek, has also come to the party, announcing it intends to co-invest 25 trillion rupiah, or about 5 per cent of its funds under management, alongside the INA.
Last week, the International Forum of Sovereign Wealth Funds announced INA had joined as an associate member. Malaysia's 1MDB was never a member of that organisation. Dr Ridha makes this point without mentioning the disastrous 1MDB by name.
"The IFS has told me they never talked to them. The cast of characters – with the [then] prime minister [Najib Razak] – meant it was sold as a sovereign wealth fund but it wasn't one."
Dr Ridha cited Singapore's sovereign wealth funds, GIC Private and Temasek, which each have more than $US400 billion in assets, as examples for INA.
"That's obviously our dream," he said. "The task ahead of us is immense. Hopefully we can help Indonesia become a good destination for investment and, by doing, create funds that will benefit our children and grandchildren."