Indonesia’s private equity market experienced a minor slump last year, recording $1.6 billion, a slight pullback from 2015’s $2.1 billion, and its internet sector accounted for a third of these investments. Go-Jek, an Indonesian competitor to Uber and Singapore’s Grab, witnessed the largest deal, raising $550 million from PE majors KKR and Warburg Pincus.
Creador, one of the most active PE firms in Southeast Asia and India, appears to have taken note. The company, which until now had invested only in ‘conventional’ sectors such as banking, fashion, food, and retail stores, and has yet to make a move in the burgeoning sector, says all options are on the table. In an interaction with this portal, D. Cyril Noerhadi, Senior Managing Director at Creador, who also heads its Indonesia operations, said the PE firm was ‘closely monitoring’ the tech industry developments, and was even toying with the idea of setting up its own, separate digital fund.
You have just closed your third fund CREADOR III at $415 million. Which sectors do you plan to invest in from this latest fund? Which countries does it cover? And how much percentage of that fund will be deployed in Indonesia?
We stick to the same sectors as with fund I and II, which means retail consumer and anything that is outside the scope of infrastructures, commodities, and highways. In terms of countries coverage, we also stick to Indonesia, Malaysia, and India, with allocated portion of one-thirds each. Of course we are always open to opportunities in other countries, especially in the Southeast Asia, but our focus and priority remain in these three countries.
How many potential deals are in your pipeline right now? Last time, your colleague Anand Narayan of Creador India told us that there were at least three potential deals regionally, what’s the status of that?
We are indeed looking at some potential deals in consumer retail. The three potential deals that Narayan mentioned were spread across India, Malaysia and Indonesia. The ones in India and Malaysia are lending businesses, while the one in Indonesia operates in the hospital chain sector. Discussions are still ongoing, especially for the one in Indonesia.
Ideally, we would expect one or two investments in Indonesia, with a preference for private companies. But again, we also look at the public ones.
In most cases, private companies are not used to large transactions, their legal and taxation documentations are still not in order, and just generally doesn’t have the standard good governance in place yet. Public companies, on the other hand, have the advantage of proven good governance and therefore makes it easier for us (to conduct due dilligence). But both types we look at the same.
Creador III is your biggest fund size yet. Any change in investment size? Stage?
Our investment size remains at the range of between $20 million and $30 million. We continue to aim for minority shares, from 10 to 30 percent. We don’t rule out the possibility of participating in bigger shares, but of course there aren’t too many windows opened for this anyway.
How much of the fund have been deployed?
We have deployed around $60 million for three assets: two in India and one in Malaysia. The assets that we just bough in India are in healthcare and finance services, while the one in Malaysia operates retail stores.
What is your average return for fund I and II? And your return target for fund III?
I think it’s about 15 percent on average for fund I and II. But we don’t really disclose targets.
What do you think of the digital boom in Indonesia? With the emergence of digital startups like Go-Jek, Tokopedia, Bukalapak, and Traveloka, do you see yourself making a move towards this sector? Why or why not?
Talking about the digital sector, it’s definitely interesting and we are closely monitoring the developments surrounding this industry. It is inevitable that everyone will go tech-based sooner or later.
Having said that, as our strategy is through growth fund, our investments will remain for companies who already have operational activities and profit. And startups rarely have this criteria. Most of the digital startups right now only have revenues and operational activities with no bottom line yet, which is not aligned with our traditional investment criteria.
There is always the possibility for us to create a new digital fund for e-commerce and the likes. What I can tell you is that we do observe digital developments that have direct impact to traditional businesses. We meet with the founders and management team, we look at their business models, their plans, their road maps, their revenue models, their markets, everything.
Even if we were to create a new fund, it would most likely invest in startups that can give support and/or added value to our existing portfolio.
Are there any planned exits from your portfolio in Indonesia? Which would be your preferred way of exit, IPO or normal trade deals?
Yes there are always two ways of exits: via IPO or trade deals. As a fund what’s important for us is return, so if from sales we can get the returns that we aim for, then why not. However, it is also our job to nurture our portfolio companies in three aspects: governance, financial, and operational. In governance the best way to do it is to prepare them for IPOs.
What is good from going public is also it would give them a price and valuation determined by the market, and it would help improve our capital market’s liquidity as well.
What do you think is the most obvious problem in our capital market? And what needs to improve?
First of all we look at the number of listed companies that we have. Last year we aimed for 30 but in reality we only managed to get 17. Now, for a company to go public is a tricky process in Indonesia. There are a lot of requirements that need to be met, including information transparency. So you got to be discipline. From the commercial aspect there are also a lot of factors.
Authorities such as the IDX management has done so many things to cut down bureaucracy and to increase efficiency, but I think a lot more parties need to be involved. Everyone has to come together in a more concerted effort to make this market more transparent, efficient, and have more integrity. And don’t forget that educating the market is as important.