China Investment Corp Eyes Indonesian State Owned Enterprises: Minister
Reuters & JG
Jakarta. China Investment Corporation may invest as much as $25 billion in Indonesia’s energy, mining and infrastructure sectors, potentially providing a huge boost to foreign investment and improving the country’s chances of receiving an investment-grade debt rating.
State Enterprises Minister Mustafa Abubakar said China’s $300 billion sovereign wealth fund had expressed interest in investing in three of Indonesia’s state firms — coal miner Tambang Batubara Bukit Asam, electricity utility Perusahaan Listrik Negara and port operator Pelabuhan Indonesia II (Pelindo II).
“CIC will form a joint venture, and for the first batch it will invest $2 billion. But the ceiling [for its investment] could be up to $25 billion,” Mustafa said.
CIC invested $58 billion overseas last year after sitting on a large cash pile in 2008. Many of its recent investments were in sectors where Indonesia is strong, like natural resources and agriculture.
CIC had 28.4 percent of its diversified equity portfolio in Asia-Pacific assets at the end of 2009, according to its annual report.
The fund has already invested in Indonesia’s biggest coal company, Bumi Resources. Last year CIC lent Bumi $1.9 billion via debt instruments.
More recently, Bumi said the Chinese investor might buy shares in the coal firm, which is controlled by the powerful Bakrie group conglomerate.
Bank Danamon economist Anton Gunawan said the Bumi investment was part of China’s “strategy to secure its energy needs, including coal.”
“But it is linked with our infrastructure needs. So it’s a two-way investment,” he said.
Ekoputro Adijayanto, a special adviser to Mustafa, said the initial investment was unlikely to happen this year as the state companies had already planned their capital expenditure and financing.
“The amount and time frame of the investment is still very fluid. Most likely it will happen next year,” Ekoputro said.
“Based on our talks with CIC, they seemed very interested but are calling for the government’s commitment in realizing the investment,” he added.
He said CIC had yet to conduct any feasibility studies, but the ministry had offered the fund several projects.
PLN is seeking $7.6 billion in investment through 2014 for the second phase of its “fast-track” program, which should add 10,000 megawatts of electricity-generating capacity.
Bukit Asam is looking for $1.3 billion investment for its coal railway in Sumatra, while Pelindo II is seeking $1.6 billion over eight years to help finance its drive to make Tanjung Priok a world-class port.
Indonesia has abundant natural resources, including coal, palm oil, copper and timber — all of which are in strong demand in China.
But Indonesia’s economic growth and development has been hampered by a lack of adequate infrastructure, including ports, power plants and roads, that also discourages potential investors.
The country has struggled to attract foreign direct investment for years, particularly from US and European investors, who are also deterred by its endemic corruption, red tape and tough labor laws.
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