Saratoga Investama Sedaya

If you type the word 'Saratoga' in Google, then you’ll find out that it is the name of a county in the state of New York, USA. But inIndonesia, Saratoga is better known as the name of one of the largest investment firms in the country, owned by prominent businessmen, Edwin Soeryadjaya and Sandiaga S. Uno. A few months ago, the company with the full name of PT Saratoga Investama Sedaya was rumored to set up an IPO in 2013. If the process is going well, Saratoga will reap US$ 200 million from its IPO, or some say US$ 500 million.

Saratoga’ IPO is obviously interesting to be noted, as they would be the first private equity firm that listed on the Indonesian stock exchange, and also because they are a quite large investment company, with assets under management (AUM) of approximately US$ 2 billion. Saratoga is the parent of several large public companies that have listing on the market before, such as Adaro Energy (ADRO), Tower Bersama Infrastructure (TBIG) and Provident Agro (PALM). Saratoga is also the parent of some private companies, as follows:

1. PT Bonecom Industri Pangan, a processed sea food company in Makassar, South Sulawesi
2. FRP Products Pte Ltd, a petrochemical company in Singapore
3. PT Global Kalimantan Makmur, an oil palm plantation company in Sanggau, West Kalimantan
4. PT iForte Solusi Infotek, an information and communication technology company
5. PT Mandala Airlines, an airline company
6. PT Medco Power, a power generation company, a joint venture with Medco Energi
7. PT Mitra Pinasthika Mustika, an automotive company, especially motorcycles.
8. PT Pelayaran Antarbuwana Pertala, a shipping company
9. Seroja Investments, a coal transportation services company
10. Sihayo Gold, a gold mining company, a joint venture with Provident Capital Partners, listing on Australia Stock Exchange (Provident is also a partner in Saratoga’s PALM)
11. Sumatra Copper, a copper mining company, also listing on Australia.

If the IPO of Saratoga is still an unclear issue, then one of the above subsidiaries, namely Mitra Pinasthika Mustika (MPM), is scheduled to hold an IPO in June this year, with a target to raise R1 - 1.5 trillion (about US$ 100 – 150 million). MPM itself is not a small company, but has assets of about Rp7 trillion or equivalent to US$ 650 million. Anyway, in this article we will not discuss about MPM, but Saratoga.

So, say Saratoga is serious about its IPO plans. Then how about the prospects? And what is private equity firm?

Private equity (PE) literally means 'self-owned/private capital', so PE firm is a company that invests in a private company that is not/has not been listed on the stock exchange (if a company is already listed on the stock exchange, then it became a public company). Invested capital typically comes from investors who entrust their funds to be managed by the firm. So in this case, PE firm is just like an asset management or mutual fund company. Only the difference, if mutual fund companies offer their investment products to investors from all economic strata, then a PE firm usually only take funds from large investors such as high net worth individuals or institutional investors. PE firm will not invest passively in companies (only become a shareholder, while the management of the company handed over to the management team from third party), but take part in the management team, or they actively appoint certain people to be placed as a company director and commissioner. Currently, the largest PE firm in the world is TPG Capital, with AUM of more than US$ 70 billion.

When a company (usually a small company) acquired or capital injected by a PE firm, then the goal is to build/manage the company to be large, and eventually hold an IPO on the stock exchange. This is what Saratoga has done on TBIG. This telecommunication tower leasing company, when it was first established in 2004, it only had five towers, with assets of no more than Rp 7 billion. But a handful of acquisitions has made the amount of TBIG's towers continues to rise, from 57 towers in 2005 to 3,104 towers in early 2011, and 7,368 towers in 2012 (probably now increasing again). The company obtains funds for the acquisitions from investors who placed their money inSaratoga, plus a combination of bank loans. TBIG itself has been successfully floored on the stock market in October 2010, and is now a company with a market value of Rp28 trillion or around US$ 2.7 billion, if based on its current share price that is Rp5,850 per share.

So then, if you want to know how to build a company with initial asset of only Rp 7 billion into a very-large company with a market value of Rp28 trillion in less than 10 years of time, you may ask Sandiaga Uno.

Back to PE firm. In addition to buying private companies, PE firms can also buy shares of a public company, usually not by buying the shares through the market, but through private placement, which is to buy stock in bulk from an closed offering (not open through market) by the previous shareholder. Because the transaction is closed, then the price per share did not follow the market price, but depending on the agreement of both parties (seller and buyer). Private placement transaction is highly favored by large investors, including PE firms, because in this way they can become major shareholder of the companies concerned, and therefore they can manage and controlling the company.

Most of the PE firm in the world, including TPG Capital and Saratoga, are private companies whose the shares are not traded on the stock exchange. But there are also some large PE firms that are public companies, so that public investors could buy their stock. Some of them are:

1. The Carlyle Group (the code on Yahoo Finance: CG, listing on Nasdaq)
2. Kohlberg Kravis Roberts (KKR, NYSE)
3. The Blackstone Group (BX, NYSE)
4. Apollo Management (APO, NYSE)
5. Oaktree Capital Group (OAK, NYSE)

Unlike investing in an ordinary company, investing in a PE firm is difficult to be analyzed, because the firm is also an investor (so we as an investor invests in an investment company, confusing right?), On the other hand, PE firms usually do not just invest in one company, but in many companies engaged in different business sectors, and we may not be able to analyze these companies one by one.

Similarly, Saratoga. If you invest in ADRO, for example, then you simply have to learn about coal. Meanwhile, if you invest in TBIG, you can learn about the telecommunications tower leasing business. But if you invest in Saratoga directly? Then you have to learn the entire subsidiary companies held by Saratoga, not only ADRO and TBIG, but also other companies that are not listed on the stock market.

Therefore, if a PE firm hold an IPO, the attraction offered is usually not their investment portfolios, but the quality of the figure behind the firm. When someone buys shares of Berkshire Hathaway, for example, then he or she sees not the performance of the portfolio of Berkshire such as GEICO, Coca Cola, American Express, etc., but the figure of Warren Buffett as the head of the company (Berkshire Hathaway is not an entirely PE firm, because Buffett mostly just buy shares of a company without meddling in management. But for some specific companies, Buffett put his men to become the CEO, etc). Similarly, Saratoga, which was interesting because the presence of Sandiaga S. Uno. Mr. Sandy himself is popular enough as a great investor, and that's why he has become rich at a young age (40's) with assets of approximately US$ 400 million, and is very likely to increase in the future.

The problem is, Mr. Sandy is not alone in Saratoga, but with his mentor, Mr. Edwin, so even if you believed so strongly in the quality of a Sandiaga Uno, then you still have to consider the presence of Mr. Edwin. In fact, Mr. Sandy only hold 32.5% shares of Saratoga, while the rest is held by Mr. Edwin and his sister, Joyce. Besides, Mr. Sandy is not only active in Saratoga, but also in another PE firm, Recapital, along with other young entrepreneur, Rosan P. Roeslani. If Saratoga seconded by Soeryadjaya family, then Recapital associated with Bakrie family. Both families are two of the most prominent business family in the country.

And if Mr. Sandy’s job at Saratoga seems run smoothly, but not at Recapital, where he is helter-skelter in the care of the companies held by Recapital. Latest, Recapital must fight until the last minute to save Bumi Resources (BUMI), and Berau Coal (BRAU) from the hands of Nathaniel Rothschild. And as you know, BUMI eventually rescued, but BRAU? Well, it seems lost. Things like this, to be honest, is difficult to be understood by retail investors (including me), so that if Recapital would also hold an IPO, I am not going to follow.

But bro, it is Saratoga who would hold an IPO, not Recapital? So how is the outlook? Well, since the company have not release the prospectus yet, then we’ll discussed about this later.

Original article was written at March 21, 2013