Indonesia luring international interest again


Stock markets in Indonesia, Thailand and Malaysia have attracted renewed interest from fund managers

By Alex Frew McMillan
CNN Hong Kong

JAKARTA, Indonesia (CNN) -- Three major deals in as many months shows Indonesia is luring back some of the overseas investment that fled during the Asian financial crisis of 1997-98 and again as Abdurrahman Wahid's administration collapsed last year.

Indonesia and its Southeast Asian neighbors, particularly Malaysia, are also catching the eye of overseas fund managers and investors, according to one expert.

"These markets are back on their radar screens," Daniel Lian, a Singapore-based economist with Morgan Stanley, notes.

Three major deals

Interest has yet to return to levels seen during the Suharto era, before the 1997-98 financial crisis prompted a rapid capital flight.

But Indonesia has secured three big deals so far this year.

The latest sign of foreign direct investment in Indonesia came on Monday, when China's largest oil company, PetroChina said it would make its first overseas purchase in Indonesia.

It is paying $216 million for Devon Energy Corp.'s oil and gas operations in the country. PetroChina made the announcement as it reported a 15 percent drop in net profit on Monday.

That is a "small first step abroad," said Tom Hilboldt, Asia oil and gas analyst for Salomon Smith Barney. But he calls the deal a "good move" that gives PetroChina some useful reserves.

Its decision follows a similar move by fellow China oil producer CNOOC three months ago.

CNOOC, which has been expanding aggressively outside China, inked its largest overseas deal to date when it agreed in mid-January to pay $585 million for the Indonesian oil operations of Spain's Repsol-YPF (full story).

New cash from Farallon

Both deals involve substituting a multinational for a China-based oil giant. So, while it leads to a new participant, the original direct investment was already foreign.


The Paris Club of creditors, pleased with progress under Megawati (l), is reworking $5.4 billion of Indonesia's debt

Evidence of entirely fresh cash, albeit in an entirely different industry, came last month. U.S. hedge fund Farallon Capital Management won the bidding for Indonesia's largest bank.

It agreed in mid-March to pay $531 million for a majority stake in Bank Central Asia (full story).

Analysts expect that interest to continue, as the administration of Megawati Sukarnoputri pushes ahead with reforms.

International companies were also reassured by the decision last Friday by the Paris Club of creditors to reschedule $5.4 billion in national debt.

Lian says overseas fund managers, who can exit a market far faster than companies that invest directly in companies, also show signs of staying in Indonesia, Malaysia, Thailand and the Philippines permanently.

"While many investors spoke of 'trading' the market, we were pleasantly surprised that some also were thinking of maintaining a more permanent presence," Lian said. "None said they were thinking of a permanent pull out."

Possibility of 4 percent growth

Domestic demand is growing relatively quickly in Southeast Asia. Like China and India, that means Southeast Asian economies will be more insulated from international downturns. They are also seeing stronger exports in farm goods, commodities and resources, all of which are relatively stable.

Morgan Stanley forecasts that their economies will show average growth of around 3.5 percent in 2002, and possibly as high as 4 percent.

But the stock markets in Indonesia, Thailand and the Philippines have rallied for the last few months. As a result, fund managers are locking in gains there and moving cash into Malaysia.

"It is quite clear from our conversation with a significant number of portfolio money managers in the past three to four weeks that Asian and European moneys are lightening up on TIP [Thailand Indonesia and the Philippines] markets and venturing into Malaysia aggressively," Lian wrote in an e-mail.

"There is a strong perception that Malaysia is still slightly undervalued, and there is enough depth and breadth to facilitate meaningful participation," he added.