Interview with AVCJ
28.03.12 / Author: Tim Burroughs, Asian Venture Capital Journal
Brahmal Vasudevan, CEO of India- and Southeast Asia-focused Creador, discusses the rewards and challenges of investing in Indonesia.
Q: What do you see as the principal challenges of investing in Indonesia?
A: Indonesia in many senses reminds me of India 8-9 years ago. You see many of the same challenges of investing in a market in its early stage. The opportunity set is smaller as people haven’t got used to private as an asset class. It is a lot harder to access companies so we are reverting to our bottom-up approach as opposed to intermediary-led. We are meeting lots of companies, not necessarily with a view to them raising money immediately but to cultivate the experience. It takes longer to get a deal done because there is a big education process around what is private equity, what are the terms you have to offer, why you have to give a board seat, why are there certain things like veto rights. Those are some of the high-level challenges and then within that you have the normal challenges of identifying the right company and the right space.
Q: How do you compete effectively against domestic GPs?
A: I don’t think of us as not being local. One of the things we decided right at the beginning is to have a presence in Indonesia. Our office here is led by Cyril Noerhadi, a senior managing director who has spent 48 years out of the 50 years of his life here. He is well known and well respected individual with great access to companies and people. That is absolutely critical. I don’t think there is any other way of investing in a market like this.
Q: Who do you see as the major rivals for the deals you look at?
A: Historically, the competition has been the debt markets. People were more interested in debt-like instruments even though the interest rates on some of these instruments were quite high. Today the private equity space in Indonesia is still very much in its nascent stage. Over time, as people realize they want to have a more balanced capital structure, they will be interested in taking some equity.
Q: How concerned are you about valuations?
A: Clearly things have appreciated substantially so you have to be cautious and selective. We are prepared to pay up where we see the right characteristics of growth, strong margins and dominant positions. One has to apply a much stronger filter as compared to 5-6 years ago when things were more attractively valued.
Q: What sectors do you favor?
A: We look at businesses that sell from one to many, B2C businesses that are targeting a broad base of consumers. In particular we are looking at financial services, retail and media, which is reflective of the kinds of things we would like to be doing. The next broad sector would be business services and within that there are many sub-sectors.