Indonesia favored once more

As things stand today, Indonesia is a gold mine of opportunities for private equity (PE) investors.

It is one of the most populous countries in the world and the most populous within the Association of Southeast Asian Nations (ASEAN).

Its growth rates are fast. Domestic consumption is rising and the middle class is expanding. There are plenty of natural resources.

Best of all, the government recognizes that it needs to invest heavily to make the country even more attractive for investors and an easier location in which to do business.

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Deals are still being done, even if they are relatively small compared with those in the United States, Europe or even China. Last year, for example, international PE group Kohlberg Kravis Roberts & Co (KKR) bought a 9.5 percent stake in the Jakarta-listed snack food manufacturer Tiga Pilar Sejahtera for $42 million.

KKR had just finished raising $6 billion for an Asian buyout fund when it announced the deal.

Between 2011 and mid-2013, PE funds closed some 13 deals worth $900 million, according to business development group Mergermarket. Accountancy firm Ernst & Young, in its annual PE report for 2013, said the country is likely to continue attracting investors.

"We are seeing good deal flow," says Karam Butalia, executive chairman of KV Asia Capital, a relatively new Asia-based fund that last year raised $263 million to invest in mid-sized companies in the region. "Indonesia is an important focus area for KV Asia Capital."

The challenge for the fund is that there is still a pricing gap, with sellers asking for a premium price for the best assets.

The Indonesia story is somewhat typical of the largest markets in Asia. In its Global Private Equity Report 2013, consultancy Bain & Co said that through much of the last decade, the country (along with others such as China and India) was a good target for fund managers because its economy was growing steadily.

The investors, known in the PE world as limited partners, were also generally very interested in getting exposure to the market.

But when GDP growth became less reliable through 2012 and 2013, things changed somewhat.

Through 2013, economic growth was the lowest in about four years, even though it picked up speed in the last quarter of the year when GDP growth rose 5.72 percent, according to Indonesia's Central Bureau of Statistics. The number in the last quarter was higher than economists had expected.