Indonesia Investment Authority secures $25.5 billion of investments in first year
Indonesia’s wealth fund has raised $25.5 billion since its inception in February 2021 and is looking to invest in projects that will support the country’s sustainable development though they must also be commercially viable, said a senior official of the Indonesia Investment Authority (INA).
“For our fundraising, we've been talking to a lot of people. I think it's over 100 different potential investors from sovereign wealth funds, pension funds, fund managers as well as global partners who were introduced by ambassadors,” said its chief risk officer Marita Alisjahbana to AsianInvestor.
“There has been a lot of interest among investors in Indonesia, so it has been very promising,” she said.
The amount raised exceeded the previously reported, unofficial target of $20 billion for the first year.
The commitments, which include a $10 billion multi-sector investment from the UAE government and a $7.5 billion maritime infrastructure investment vehicle - to invest in seaports, cargo yards, and logistic facilities - by a consortium comprising supply chain solutions company DP World and Canadian pension fund Caisse de depot et placement du Quebec (CDPQ), were secured within months of each other in 2021.
INA has also secured $5 billion in seed money from the Indonesian government and a $3.75 billion thematic fund – with contributions of $1 billion each from the Abu Dhabi Investment Authority (Adia), Dutch pension fund APG, and CDPQ, and $750 million from INA’s initial capital – for the construction of toll roads.
INA's fundraising success has triggered some comments in the industry. “The INA has been marketing and fundraising very aggressively (talking to the press before even the commitments were official, which the co-investors didn’t like),” Diego Lopez, managing director of Global SWF told Asianinvestor.
Though Lopez did not provide an example, recent interventions in the press and on social media by the coordinating minister for maritime and investments Luhut Pandjaitan hint at the forward stance the Indonesian government has been taking.
The minister told the press and posted on social media that Crown Prince Mohammed Salman of Saudi Arabia had told him during a visit to the kingdom in early March 2022 that Saudi Arabia was interested in investing in Indonesia through the INA.
INA MANDATES
Alisjahbana said the government had issued INA with two broad mandates: to invest in “national strategic priority sectors” to contribute to the country’s sustainable development and to invest and create wealth for the country now and into the future.
The strategic sector is divided into four main categories: transportation and logistics; digital infrastructure; social infrastructure; and renewable energy.
As a result, INA has focused in its first year on state-owned enterprises and sustainable infrastructure such as toll roads, cargo, port containers, and data centres, she said, such as investing $220 million in the $1.3 billion initial public offering of Mitratel, the state-owned telecommunications tower operator, which debuted on the Indonesian stock exchange last November. Mitratel owns and operates about 18,000 cellular towers in the country. About 90% of the funds raised from the listing will go toward upgrading and expanding the network with an additional 6,000 new towers. The public listing also attracted participation from Singapore’s GIC, Adia, and the Abu Dhabi Growth Fund (ADG).
INA will look at future opportunities – at least 50 deals are currently under discussion - that take it beyond state enterprises and infrastructure to private sector assets, which may include consumerism and technology-enabled opportunities, she said.
It has not ruled out the possibility of funding tech start-ups and unicorns - private technology companies each valued at more than $1 billion, of which Indonesia is home to more than a dozen.
INA can invest outside the country, although for now most of its projects will be “Indonesia-centric”, Alisjahbana said.
“Our mandate is to obtain optimal risk-adjusted returns. So, the investments must be commercially viable,” she said in reference to INA's second mandate to invest and create wealth for Indonesia now and into the future.
She said this guiding principle will also apply to projects connected to the construction of the new $32 billion capital city Nusantara on the east of the island of Borneo.
It is understood that the government wants INA to fund the myriad projects in the new city, from roads to sanitation plants to power stations.
“We’re definitely going to see what we can do to support the government there. But at this point in time, we have not yet identified certain projects,” she said, adding that the focus up till now has been on developed, rather than greenfield, assets.
In a separate media report on Thursday (March 17), INA’s chief executive Ridha Wirakusumah said any investments in projects in Nusantara must be commercial decisions, adding he wanted to avoid the kind of mismanagement that caused the corruption scandal at Malaysia’s state fund 1MDB got into.
GOVERNANCE
Establishing a reputation as an independent body with strong corporate governance with investors is a key challenge for INA, said Alisjahbana, given the perception of high levels of corruption among countries in the region.
“If you look at the people we have hired – the investment team, the risk team, and the finance team – they are professionals of the highest quality and integrity,” she said.
The investment authority's five-person main board of directors, all with strong professional backgrounds, manages its day-to-day affairs and is there to ensure transparency and checks and balances.
Working alongside them is the five-person supervisory board – three independent directors, the finance minister, and state-owned enterprises minister – which monitors and reports directly to the president.
Well-regarded lawyers, bankers, and accountants make up the membership of the two boards. Alisjahbana, who is also a main board director, had been Citibank’s Indonesia country and corporate risk manager for the last 15 years and the first Indonesian to hold the role.
“When we go out to meet investors, they interact with us, and their judgment is very much based on the reputation and background of the people that are running this place,” she said, adding “This has given them much comfort.”
Lopez, of Global SWF, said governance has been INA's major challenge from the beginning, given the problems faced in neighbouring countries, as well as Indonesia's various attempts to set up a sovereign wealth fund (SWF).
“INA was modelled after India’s NIIF [National Investment & Infrastructure Fund], to use the country’s wealth but also to catalyse further FDI into the country - and as such, it needs a higher degree of transparency than your average SWF,” he said.