Sovereign funds: Qatar invests in Indonesia

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By:
Dominic O’Neill
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Qatar’s sovereign wealth fund is to invest $850 million in Indonesia and has set up a joint venture with the local government to do so.

It is another sign of the willingness of Gulf sovereign wealth funds to invest in emerging economies, particularly in Asia. "I think within three or four years we will see a lot more investments coming into Indonesia. It is a large market with a huge potential," says Hussain Al Abdulla, a board member of Qatar Investment Authority.

The new venture will not be on equal terms though: out of the holding company’s $1 billion, just $150 million will be provided by Indonesia. There will be Indonesian and Qatari board members, however. Executives are being hired globally. "The investments could be with local or international partners in Indonesia, depending on requirements and types of investments," says Al Abdulla, who is also chairman of Al Rayan, a Qatari state-backed Islamic bank launched in 2006.

The company’s focus will be on providing capital for projects in natural resources and infrastructure, with the possibility of investing in the financial sector. Reports say the Indra Gilihulu power plant in Indonesia’s Papua province is already in line to receive cash from the new fund.

"It depends on the opportunity. Most of it might be in natural resources, especially coal, because we don’t have coal in Qatar," Al Abdulla tells Euromoney. In infrastructure, he says the focus will be on electricity and power generation. Aside from coal, also on the agenda are oil, gas, palm oil and other commodities Qatar lacks.

Asked about investing in hydrocarbons – something Qatar has in abundance – Al Abdulla says: "Even if we do have gas in Qatar, that means we have lots of experience in gas and petrochemicals. If we can use that, why not? I think it’s a good idea."

The gas-fuelled QIA has previously been thought to focus on sectors such as healthcare, education, technology and financial services rather than natural resources. Aside from sizeable stakes in the London Stock Exchange and Industrial and Commercial Bank of China, it has a portfolio of $3 billion in healthcare. "It would be ideal if the companies we acquire set up operations in Qatar and transfer their expertise to them," a QIA executive said recently.

Indonesia, which is the fourth most populous country in the world, has in the past found it difficult to finance infrastructure developments. The unemployment rate in the southeast Asian country is about 12.5%. With a bad road network and regular power blackouts, improvements are particularly urgent in transport and electricity. But the country has attracted much less money from Middle Eastern sovereign wealth funds than has China because of the higher perceived risk there.

For this reason, QIA partnered up with the Indonesian government. It is QIA’s first official government-to-government partnership, although the investor has previously established joint ventures in the private sector and with quasi-governmental agencies. "We studied the situation in Indonesia and found it promising," says Al Abdulla.

"Things are improving in Indonesia. The government has changed and is willing to change and make the country a better place in which to invest. But it’s still a challenging legal and investment environment. So when we decided to go to Indonesia, we decided to set up a joint venture with the government to protect ourselves. We decided to contact government, and we told them we were willing to invest in Indonesia and do a joint venture with the government," he says.

According to news posted on the Indonesian government’s official website, discussions over the terms of the deal caused several months of delays. Hussain Al Abdulla and Muhammad Jusuf Kalla, Indonesia’s vice-president, signed the agreement on December 6 in the Indonesian capital, Jakarta. But Qatar, says the website, had originally wanted the Indonesian government to make a more substantial financial commitment.

Elsewhere in Asia, QIA invests in Japan, Korea, China, India, Malaysia, and Singapore. "In Indonesia, we have not done so much up to now. But it is not our first time there. We have made investments in Indonesia before, especially in telecoms, together with [Singapore’s sovereign fund] Temasek," says Al Abdulla. In particular, he points to the links that Qatari telecoms company Qtel has to Indonesia.

QIA owns 50% of Qtel, and the chairman of Qtel is a member of Qatar’s Al Thani ruling family. In March 2007, Qtel joined hands with Temasek through Asia Mobile Holding, of which Qtel owns 25% and Temasek owns 75% through a subsidiary, ST Telemedia. Asia Mobile Holding has a 41% stake in Indonesia’s second-largest mobile phone operator, Indosat. However, analysts say Temasek might soon sell its stake in Indosat. Temasek is under pressure from the Indonesian authorities to reduce its Indonesian telecom holdings. Aside from its share of Indosat, the Singaporean fund owns a sizeable stake in Indonesia’s biggest mobile phone operator, Telkomsel.

Vietnam venture

Less than a week after the Indonesia joint venture was announced, a string of deals were made during a state visit to Qatar by Nguyen Sinh Hung, Vietnam’s deputy prime minister. At the signing of a memorandum of understanding between Qatar and Vietnam’s chambers of commerce, Nguyen announced that a joint $1 billion investment fund was being established between the two countries. Nguyen met on the same day Hussain Al Abdulla and Sheikh Hamad bin Jassim Al Thani, the chairman and chief executive of the QIA, and the prime minister of Qatar.

A memorandum was signed between Qatar Petroleum International and Petrovietnam. "Vietnam is a resource-rich country but not fully tapped," Qatar’s energy minister told local media.

Reports said Nguyen pledged easier access to Qatari investments during the signing of a trade agreement with Yousef Hussain Kamal, minister of finance and acting minister of economy and trade for Qatar. "There are lots of opportunities for investment in Vietnam, in particular in natural resources," Kamal was reported to have said when the trade agreement was signed.

An agreement was also reached between the Vietnamese and Qatari Diar to develop tourism and commercial real estate projects in Vietnam.

Qatari Diar is a real estate investment company 100% owned by QIA, and set up at about the same time as QIA. It has projects in Qatar, Oman, Sudan, Cuba, Egypt, Eritrea, Morocco, London (including Chelsea Barracks and Grosvenor Waterside) and elsewhere. Aside from the investments it manages on its own, Diar has a 45% stake in Barwa, a real estate developer with projects in Qatar and beyond. It also owns 40% of the Qatar Real Estate Investment Company (Alaqaria), which was set up to develop Qatar’s oil and gas-related infrastructure (for example, gas workers’ housing). Alaqaria therefore deals mostly with Qatar Petroleum.

Aside from Diar, QIA makes its own real estate investments under its head of real estate, Navid Chamdia, a former project finance adviser at the Anglo-American auditing firm Ernst & Young.

Estimates of QIA’s assets under management range from about $40 billion to about $60 billion. Established in 2005, the fund is relatively young compared with other sovereign funds in the region. Initiatives such as these, however, suggest that QIA is trying to make up for lost time.