Indonesia plans its own Temasek

02/05/2010 | Chris Wright

Indonesia plans to build its own version of Singapore’s Temasek – a vast holding company for all of its state-owned assets, officials told Emerging Markets this weekend

Indonesia plans to build its own version of Singapore’s Temasek – a vast holding company for all of its state-owned assets.

The number of state-owned companies in Indonesia would be reduced dramatically – from 141 today to 78 by 2014 – under the plan, representatives of the Ministry of State Owned Enterprises told Emerging Markets this weekend.

A first stage, which will establish holding companies for individual sectors such as plantations or pharmaceuticals, has been under discussion for some time. But the intention to put all these companies into a single holding entity marks an ambitious new strategy.

The ministry has identified Temasek and Malaysia’s Khazanah, which also uses a holding company structure for the oversight of state-owned assets, as role models, although the two have quite different approaches to their holdings.

Ekoputro Adijayanto, special adviser to state enterprises minister Mustafa Abdullah Abubakar, said: “SOEs in essence have two missions: corporate value maximization, and instruments of social welfare.

“We are aiming for our SOEs to become more professional, transparent and well-governed, yet on a level playing field with their international peers.”

Indonesia’s SOEs law and related laws would have to be amended, Adijayanto added. “Such laws will become the legal ground finally to establish a super holding company, like Khazanah or Temasek.”

The plans have drawn a muted response from analysts. “It’s an interesting concept but I’m not sure what value it adds,” said an analyst at a major brokerage. “As a holding company, I see it as just another unnecessary management structure. It would be a real bun fight for positions. How do you put Bank Rakyat, Bank Mandiri and Bank Negara under one roof?”

Bundling management of Indonesia’s SOEs into a single entity would be a colossal task. They had total revenue of more than Rp930 trillion (about $100 billion) in 2009; their capital expenditure and operating expenditures are consistently greater than the entire capex budget for the Indonesian state.

SOEs’ taxes and dividends alone accounted for 12% of national budget revenue in 2009, and they already represent 31.5% of the Indonesian Stock Exchange’s market capitalization, despite the fact that most are not yet listed.

The Ministry claims progress in SOE reform, arguing that the number of loss-making companies will fall from 36 in 2006 to just eight this year. But long-awaited privatizations and restructurings, and IPOs of Garuda Indonesia airline and PT Krakatu Steel, are not yet complete.

Parikesit Suprapto, deputy minister for state owned enterprises, insisted both sales would take place this year, despite recent worries about Garuda’s debt load.

The next concrete step is likely to be a holding company for several plantation companies, to be followed by an IPO, Suprapto said.

Indonesia’s two named role models have dramatically different approaches. Temasek is largely a passive shareholder in its companies, whereas Khazanah is closely involved, setting detailed evaluation measures for performance and sometimes intervening to replace management.

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