Indonesia’s government will set up a state investment agency to manage holdings in some of the biggest state companies after parliament passed a bill on Tuesday approving the body, which is intended to operate like Singapore’s investment arm Temasek.
The creation of the Daya Anagata Nusantara Investment Management Agency, or Danantara, was announced soon after President Prabowo Subianto took office in October, with the aim of improving the performance and returns from state investments.
The new agency is set to receive 1,000 trillion rupiah ($61 billion) in initial capital, Darmadi Durianto, a lawmaker from the parliament’s commission overseeing the bill, told Reuters.
“Danantara is officially set up and formed in order to consolidate the management of state-owned companies and optimise the management of dividends and investments,” Erick Thohir, the state-owned enterprises minister, told parliament.
He said the agency would help the government reach Prabowo’s target of 8% economic growth. Government-owned stakes in Indonesia’s biggest lenders, Bank Mandiri, Bank Rakyat Indonesia, and Bank Negara Indonesia, as well as electricity utility PLN, miner MIND ID, energy firm Pertamina and telco company Telkom Indonesia are among those expected to be transferred to Danantara, media have reported.
Those companies have combined assets reaching $600 billion, according to CreditSights, Fitch Group’s debt research firm.
Under current rules, dividends are paid to the Finance Ministry, while government holdings in state companies are managed by the State-Owned Enterprises Ministry.
Toto Pranoto, a University of Indonesia lecturer who was a consultant for the bill, told Reuters the legislation proposes the SOEs ministry acts as a supervisor for Danantara and maintains a small stake in state companies and veto power on corporate actions.
Danantara will set up two entities: a “superholding” that manages state companies and an investment firm that will manage dividends and leverage assets, he said.
The agency seeks to replicate some of the success of Singapore’s Temasek, which had a portfolio value of $284 billion in investments globally as of last March and a 14% total shareholder return since its inception in 1974, according to its website.
In a January note, CreditSights said that if Danantara could efficiently and effectively consolidate SOEs, it would bring about better funding access and operational improvements as well as better access to global markets. But it also warned the agency could be susceptible to political interference.
“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,” it said, adding that Danantara was still seen as a modest credit positive event for the concerned SOEs.
The office of Danantara did not respond to a request for comment on possible political influence on the agency.
Reuters
