IDB, Pertamina Pension Fund to form equity firm

JAKARTA. Islamic Development Bank (IDB) and Pertamina Pension Fund have agreed to establish a joint venture private equity firm to support the financing of infrastructure and other projects in Indonesia.

Pertamina Pension Fund, a subsidiary of state-owned oil and gas company Pertamina, was chosen by the Jeddah-based IDB Group for its experience and performance in managing funds invested in the capital market and other assets, according to its executive.

“IDB Group was looking for a partner to invest in Indonesia and it has chosen Pertamina Pension Fund, which has expertise in capital market investment,” the fund’s CEO, M. Helmi Kamal Lubis, said after an agreement signing with IDB late last week.

Helmi said the IDB’s initiative of establishing an investment company with an Indonesian partner was relatively new since Islamic funds rarely entered the domestic financial market, which has limited instruments of investment, and usually went to neighboring Malaysia.

Helmi said the future company would be an Indonesian legal entity in the form of a Perseroan Terbatas (PT) and resemble local private equity firms, such as Saratoga Investama Sedaya and Northstar Pacific Partners, yet based on sharia compliance.

Before deciding that the company would take the form of a PT, Helmi said the Financial Services Authority (OJK) had suggested other forms, such as venture capital, which has yet to see strong growth in the country despite being beneficial local small and medium enterprises (SMEs).

Helmi said Pertamina Pension Fund had submitted a permit proposal to the OJK and the Law and Human Rights Ministry, while preparing funds amounting to Rp 25 billion (US$1.93 million) as a minimum capital requirement for an investment management company.

In addition, Helmi said the IDB had committed to the future company having total paid-up capital worth around $100 to $200 million in the first year, with the help of two other investors from the United Arab Emirates and Bahrain.

“Once the permit has been issued, the company will be fully owned by Pertamina Pension Fund, which will immediately divest the shares to IDB and other partners through various mechanisms, such as a rights issue. It is an easier scheme for us,” Helmi said.

The OJK had also suggested that other pension funds would be invited to join as the future company’s general partners to enlarge its capacity, even though discussion on the matter was still ongoing, Helmi said.

“We are actually hoping that large-size state pension funds, for instance Telkom Pension Fund and Bank Indonesia Pension Fund, can join the initiative,” Helmi said.

Helmi expected matters related to the establishment of the firm, including legal, to be completed soon so that the company could launch at the end of May, even though he refused to disclose its name.

Helmi further said that the company would focus mainly on stocks of listed companies, especially those in the energy, property and infrastructure sectors, which are relevant to Pertamina Pension Fund’s expertise as well as IDB’s commitment.

In June last year, Pertamina Pension Fund purchased shares of mid-size energy firm Elnusa. Pertamina Pension Fund had Rp 9.92 trillion in assets under management as of last year, with a 20.74 percent increase in return of investment (ROI) worth Rp 2.05 trillion.

At Thursday’s agreement signing last week, IDB president Ahmed Mohammed Ali al-Madani said the IDB Group was looking forward to being “an active and sincere partner for Indonesia in achieving the goals of infrastructure development.”

Al-Madani met with President Joko “Jokowi” Widodo at the State Palace in Jakarta to disclose IDB’s commitment to supporting Indonesia’s development as the group revealed to have around $3 billion to $5 billion in the pipeline for the next five years to finance various projects in the country centering on infrastructure, education and poverty alleviation.

In December last year, the IDB Group launched its Country Gateway Office in Jakarta as the group previously only had a local field representative. Prior to the launch, all communications and transactions with the IDB entities were carried out from Jeddah, Saudi Arabia, or from the IDB representative office in Kuala Lumpur, Malaysia. (Grace D. Amianti)