Saratoga Seeks Consumer Deals With $480 Million War Chest

The Indonesian private-equity firm co-founded by tycoon Edwin Soeryadjaya plans to invest about $480 million, mainly in consumer-related companies, ahead of a planned initial public offering this year.

Saratoga Investama Sedaya, which owns shares in PT Adaro Energy, Indonesia’s second-biggest coal producer, expects to agree next month to buy at least one consumer-related company, Soeryadjaya said in an interview, declining to name the target. Saratoga will team up with other investors as the deal may exceed the fund’s $90 million cap for a single project, he said.

“I want to find a few more consumer-goods companies, in that industry, in that space,” Soeryadjaya, 63, said in his office in Jakarta on Jan. 14. “Hopefully by next month we have one or two that we can announce.”

Soeryadjaya, who founded Saratoga with Sandiaga Uno in 1998, is counting on rising domestic consumption in Southeast Asia’s biggest economy to boost returns as a slowdown in global growth has weakened prices of commodities such as coal and palm oil. Private spending in the world’s fourth-most populous nation accounts for about 63 percent of the economy, according to government data.

Saratoga’s Asia Fund III manages about $600 million, of which around $120 million has been invested, said Soeryadjaya. Individual investments by the fund can’t exceed 15 percent of its total assets, he said.

IPO Plan

Soeryadjaya is considering listing Saratoga through an IPO this year, five people with knowledge of the matter said last week. The deal may raise at least $200 million, and investment banks presented proposals to manage the IPO last month in Jakarta, said two of the people, asking not to be identified as the information is private. Soeryadjaya declined to comment on the IPO plan in the interview.

An IPO would make Saratoga the first private-equity firm with shares traded in Jakarta, data compiled by Bloomberg show. At $200 million it would be Indonesia’s biggest since PT MNC Sky Vision’s $228 million sale in June last year, the data show.

Soeryadjaya expects rising demand for air travel to help Saratoga expand PT Mandala Airlines, the budget carrier in which it owns a stake. Tiger Airways Ltd., which is partly owned by Singapore Airlines Ltd., the world’s third-most valuable airline, also owns a 33 percent stake in Mandala.

“Indonesia is a very huge country, geographically and in number of people and there is still a lot of growth in the income level,” Soeryadjaya said. “It is very easy to assume there is a lot of demand for travel.”

Indonesia’s economy grew 6.17 percent in the three months ended Sept. 30 from a year earlier, holding above a 6 percent pace for an eighth quarter.

Airspace Competition

Indonesian carriers are adding more aircraft in a region where air travel is expected to grow more than 6.4 percent annually through 2013, according to Boeing.

Mandala Airlines, which owns five Airbus SAS A320 planes, competes against bigger rivals such as PT Garuda Indonesia and PT Lion Mentari Airlines. Garuda’s budget carrier Citilink ordered 25 Airbus SAS A320neo aircraft, worth $2.4 billion at list prices, the planemaker said yesterday. Lion placed a record order with Boeing Co. last year.

Soeryadjaya said that when Saratoga was planning to take over Mandala he told his partners that he would only do it if they could find the right partner.

“I don’t know anything about airlines,” he said. “Tiger is not only Tiger. It is part of Singapore Airlines.”

Infrastructure Projects

Saratoga is also interested in opportunities to invest in infrastructure projects and palm oil plantations, Soeryadjaya said. It isn’t interested in acquiring another coal producer as it already owns shares in Adaro, he said.

Faster economic growth is stretching the capacity of roads and ports as the flow of goods increases in the world’s largest archipelago. Indonesia has more than 17,000 islands, stretching 5,300 kilometers (3,300 miles) along the equator.

“There are a lot of government infrastructure projects,” said Ferry Wong, head of Indonesian equity research at Citigroup Inc. “Those would be good opportunities for them.”

Soeryadjaya said he expects to begin construction on a 115-kilometer toll road project in the coming weeks after a six-year delay because the “government failed to secure the land.” The road will run between Cikampek and Palimanan east of Jakarta.

President Yudhoyono plans to spend about 1,786 trillion rupiah ($181 billion) through 2025 on projects such as new roads, bridges and ports. Construction and infrastructure related stocks were among the biggest gainers on the Jakarta Composite index last year. Shares of PT Adhi Karya, a state-run construction company, jumped 203 percent last year, compared with a 13 percent gain in the benchmark stock index.

Palm Oil

“We are still looking for opportunities in plantation, in palm oil,” Soeryadjaya said. “When it is bad you want to buy, because in the long-term I am confident that plantation is a good bet. To me, it is always in demand, there is no substitute yet for palm oil.”

Palm oil futures in Kuala Lumpur slumped 23 percent last year as stockpiles expanded in Malaysia and in Indonesia, the biggest producer, and economic slowdowns in Europe and China curbed demand.

Other investments held by Saratoga include PT Tower Bersama Infrastructure, which rents telecommunication towers to Indonesia’s biggest mobile-phone operators such as PT Telekomunikasi Selular and PT Indosat; and shares in PT Medco Power, the electricity unit of Indonesia’s largest listed oil company, PT Medco Energi Internasional.

“The mandate that I got from my investors is to invest,” Soeryadjaya said. “So far we are on the right track and it is the right formula to invest in Indonesia.”