Private equity firms are having a love affair with the emerging Asian markets and Warburg Pincus became the next big player in the region. The private equity firm announced on Tuesday that it is going to make its first investment in Indonesia by building and developing retail malls in the country with local operator Nirvana Development.
The firm is set to create hypermarket anchored retail malls around Indonesia in a development deal worth $125 million. The investment will come from Warburg Pincus’ Warburg Pincus Private Equity XI fund. The $11.2 billion fund closed in 2013 and the firm’s aim was to use it for global investments.
According to the Wall Street Journal, the firm will also have an option to invest further $75 million in Indonesia. This money would focus on shopping malls across the second- and third tier cities in the country. The urbanisation of Indonesia is rapidly expanding and therefore the firm might want to use its additional investment to capture the growing consumption and economic growth.
The private equity firm will join forces with Nirvana Development, which is a local operator in Indonesia. The two partners will invest through the JV company. The long-term vision is to create leading retail platforms to capture the increasing disposable income of the growing middle class.
Jeffrey Perlman, the managing director of Warburg Pincus, said in a statement, “With a rapidly expanding middle class and a nascent modern retail sector outside of Jakarta, there is a meaningful opportunity to contribute to Indonesia’s consumption transformation.
We are confident that Nirvana’s strong local sector knowledge and operational experience, together with Warburg Pincus’ proven ability to assist our partners in realizing their full potential, will enable us to benefit from Indonesia’s long-term economic growth and emerging middle class.”
Roots in the Sector
Although the firm is investing in Indonesia for the first time in its long history, Warburg Pincus has been active in Asia in the past. It made its first Asian investment in 1994. In more recent years, it has looked to the South East Asia region. In 2013, the firm bought a 20% stake in Vincom retail, a Vietnamese shopping mall owner and operator, in a deal worth $200 million.
Furthermore, the firm has been investing heavily on retail-related sectors. The current fund, under which the investment to Indonesia was made, has also invested in retail sector through CAR Inc. and China Kidswant. Warburg Pincus has also made successful retail investment in the past in big brands like Poundland, Mattel and Neiman Marcus.
Indonesia has been one of the rising destinations for private equity. In 2013, Kohlberg Kravis Roberts & Co. paid almost $42 million for a 10% stake in Tiga Pilar Sejahtera Food Tbk, an Indonesian-listed snack food maker. The country has a quickly growing middle class and urbanisation has offered many private equity firms plenty of opportunities to invest. It remains to be seen whether this year will see more big deals in the country.