Indonesia Launches Danantara: A New Era for State Investments
JAKARTA (Reuters) – Indonesia’s parliament is set to consider a groundbreaking bill on Tuesday, details of which could revolutionize the country’s financial landscape. The bill, if passed, will pave the way for the creation of the Daya Anagata Nusantara Investment Management Agency, or Danantara, designed to boost performance and returns from state investments across several leading enterprises.
The Arrival of Danantara: Following Temasek’s Lead
The initiative to establish Danantara was announced shortly after President Prabowo Subianto’s inauguration in October. Modeled after Singapore’s state investment arm, Temasek, Danantara aims to elevate the administration of Indonesia’s state-owned enterprises (SOEs). This move demonstrates a strategic shift towards a more professionalized management approach, mirroring global best practices.
Endorsement Likely as Parliament Approves the Bill
Recent feedback indicates the bill has received strong endorsement from the parliamentary commission overseeing SOEs. This suggests a high likelihood of approval, signaling the Indonesian government’s commitment to implementing this ambitious plan.
A Massive Injection of Capital
The new agency is expected to be capitalized with a hefty sum of 1,000 trillion rupiah ($60.86 billion), according to parliamentary commissioner Darmadi Durianto. While the exact origin of this funding remains undisclosed, the significant investment underscores the scale and importance of the project.
Target Companies: Who Will Be Under Danantara’s Control?
Several high-profile Indonesian companies stand to be impacted by Danantara. Leading lenders Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia, along with major state-owned enterprises like PLN (electricity utility), MIND ID (miner), Pertamina (energy), and Telkom Indonesia (telecom), are all reportedly in line for transfer to Danantara’s portfolio. Collectively, these companies boast combined assets totaling approximately $600 billion, as reported by CreditSights, a Fitch Group subsidiary focused on debt research.
How Will Danantara Operate?
The main goal of Danantara is to optimize dividends from SOEs. Currently, these dividends are directed to the Finance Ministry, with management responsibilities lying with the SOEs Ministry. Under the new scheme, the SOEs Ministry will supervise Danantara and maintain a minor stake in state companies, retaining the right to veto corporate actions. The agency plans to structure itself into two core segments: a ‘superholding’ for managing SOEs and an investment firm focused on dividend management and asset leveraging.
A Comparative Success Model: Temasek’s Track Record
Corresponding its aspirations, Danantara distinguishes itself by aiming to emulate the exceptional performance and growth realized by Temasek, Singapore’s pioneering state investment company. Temasek boasts a flourishing portfolio of $284 billion, achieving a 14% total shareholder return over nearly five decades since its inception in 1974.
Evaluation: Opportunities and Potential Risks
According to CreditSights, the establishment of Danantara presents a significant opportunity for better funding access, operational efficiency, and improved global market accessibility. However, the expert firm also highlights potential risks tied to possible political influence affecting the utilization of funds, integration processes, and the impact of Danantara on SOE strategic directions.
“We see some risks upon the establishment of Danantara, including potential political influence on the utilisation of the fund, the integration process, and influence of Danantara on the strategic direction of the SOE, could affect investor confidence in the portfolio companies,” reported CreditSights, indicating that despite the promising potential, careful handling will be necessary.
When contacted for comment on the risks related to political interference, the Danantara office did not immediately respond.
Currency Conversion Note
To reference the financial figures mentioned, it’s worth noting that $1 is equivalent to approximately 16,430 rupiahs, based on the exchange rate provided at the time of reporting.
Conclusion
As parliament votes on this significant bill, the financial world watches with keen interest. The creation of Danantara signals a comprehensive strategy to advance Indonesia’s state investments towards improved performance and returns. Should the bill pass, the new agency stands to play a pivotal role in reshaping Indonesia’s financial landscape, similar to its counterparts in leading economies worldwide.
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