CPPIB Buys Stake in Indonesian Toll Road

IPE reports that CPPIB just bought a toll road stake as a debut infrastructure investment in Indonesia:

Canada Pension Plan Investment Board (CPPIB) has made its debut infrastructure investment in Indonesia with the acquisition of a 45% stake in the Cikopo-Palimanan (Cipali) toll road.

CPPIB is partnering PT Baskhara Utama Sedaya (BUS) to jointly acquire the 55% stake, in the concession holder and operator PT Lintas Marga Sedaya (LMS), currently held by PLUS Expressways International.

BUS is an existing owner of 45% of LMS and will increase its stake to 55%. CPPIB will acquire the remaining 45% stake in LMS for an undisclosed sum.

The 117km Cipali toll road is one of the longest operational toll roads in Indonesia and a critical link in the transportation network of the island of Java, as part of the Trans Java Toll Road network.

Scott Lawrence, managing director, head of infrastructure, CPPIB, said: “Cipali toll road provides CPPIB access to a vital infrastructure development supported by rising motorization rates in one of the most densely populated and economically productive regions in Indonesia.”

Suyi Kim, senior managing director and head of Asia Pacific, CPPIB, said: “As CPPIB’s first infrastructure investment in Indonesia, this deepens the fund’s commitment to the Asia-Pacific region as well as our focus on investments in new markets with attractive return and risk characteristics.”

As at the first half of the year, CPPIB – which manages the C$400.6bn (€272.8bn) funds of the Canada Pension Plan – had C$33.1bn invested in infrastructure assets globally.

Benefits Canada also reports that CPPIB invests in Indonesian toll road, the Caisse in job website and OMERS in restaurant technology:

The Canada Pension Plan Investment Board is making its first infrastructure investment in Indonesia, with the acquisition of a 45 per cent interest in PT Lintas Marga Sedaya, the concession holder and operator of the Cipali toll road, a critical link in the transportation network of the island of Java.

PT Baskhara Utama Sedaya, a wholly-owned subsidiary of PT Astra Tol Nusantara, currently owns a 45 per cent stake and will increase that to 55 per cent, while the CPPIB will acquire the remaining 45 per cent stake.

“We are pleased to invest in the Cipali toll road alongside Astra Infra, a knowledgeable and sophisticated local partner, and look forward to a successful long-term relationship between our two organizations,” said Scott Lawrence, managing director and head of infrastructure at the CPPIB, in a press release. “Cipali toll road provides CPPIB access to a vital infrastructure development supported by rising motorization rates in one of the most densely populated and economically productive regions in Indonesia.”

In other investment news, the Caisse de dépôt et placement du Québec is making a $53 million investment in Neuvoo.ca, a Canadian employment website.

The cash injection is intended to enable the company to further expand and optimize its artificial intelligence-based platform.

“Through this transaction, CDPQ supports a new economy company which is growing at a rapid pace and has distinguished itself and become an international leader thanks to the successful integration of artificial intelligence,” said Charles Émond, executive vice-president and head of Quebec investments and global strategic planning at the Caisse, in a press release. “At Neuvoo, they have designed a unique technology that is positioning their company as a strong competitor in the online job recruiting market.”

Still further, the Ontario Municipal Employees Retirement System’s growth equity group led a $158 million round of financing for TouchBistro, a restaurant technology solution provider. The OMERS is investing $85 million, alongside Barclays, RBC Ventures and BMO Capital Partners. The pension fund’s venture capital arm had previously invested in the company.

“This is a fabulous opportunity to partner with TouchBistro as it continues supporting its restaurant partners with innovative and market-leading software products,” said Mark Shulgan, managing director and head of growth equity at the OMERS, in a press release. “The restaurant industry is a large market and can realize significant improvements in efficiency and profitability by adopting technology like TouchBistro’s,” he added.

You can read the Caisse's press release announcing an equity investment of CA$53 million in neuvoo, one of the fastest growing employment websites in the world. With 5,556% growth in 5 years, neuvoo recently ranked 14th in Canadian Business magazine’s 2019 Growth 500, which lists Canada’s fastest growing companies.

Second, OMERS Growth Equity announced that it has successfully led a C$158 million Series E funding for TouchBistro, a leading global restaurant technology solution provider, with an $85 million investment:

Founded in 2010, TouchBistro pioneered the transformation of the restaurant industry through its award-winning iPad point of sale (POS) system. TouchBistro has since offered a suite of technology solutions that allow restaurant owners to save time on routine tasks, acquire new business and simplify their finances. Present in more than 16,000 restaurants in over 100 countries, TouchBistro is a global leader in the rapidly evolving restaurant industry.

 “This is a fabulous opportunity to partner with TouchBistro as it continues supporting its restaurant partners with innovative and market-leading software products,” said Mark Shulgan, Managing Director and Head of Growth Equity at OMERS. “The restaurant industry is a large market and can realize significant improvements in efficiency and profitability by adopting technology like TouchBistro’s,” he added. TouchBistro is the number one grossing iPad POS app in 37 countries and has processed more than US$11 billion in annual payments through its payments platform. “We are excited to build on OMERS strong relationship with TouchBistro, and look forward to supporting Alex Barrotti and his team,” said Mr. Shulgan.

“We are impressed with the tremendous growth that TouchBistro has achieved to date and believe that it is at the early stages of attaining a much larger share of the global restaurant technology market,” said Mark Redman, Executive Vice President and Global Head of OMERS Private Equity. “OMERS has been partnering with software businesses for over 20 years, with a long history of investing in innovative companies, including Shopify, Constellation Software, Inmar, Civica, Logibec, Rover and League. This investment demonstrates a long-term commitment to support exceptional companies through all stages of development,” Mr. Redman added.

Third, you can read CPPIB's press release on the Cipali toll road in Indonesia. According to the press release, the transaction is expected to be completed in the fourth quarter of 2019, subject to customary closing conditions, including regulatory approvals.

This is a big deal and where I'd like to focus my attention. According to Wikipedia:

Cikopo–Palimanan Toll Road shorthen as Cipali Toll Road is a toll road in Indonesia that connects the existing Jakarta–Cikampek Toll Road and Palimanan–Kanci Toll Road and is part of the Trans-Java toll road. The total length of the road is more than 1,167 kilometres (725 mi). The toll road is 40 kilometers shorter than through traditional North Coastal Main Road and predicted will cut 1.5 to 2 hours length of time.

For a debut infrastructure investment in Indonesia, CPPIB chose the right partner, PT Baskhara Utama Sedaya (BUS).

Even though financial details were not disclosed, in May 2017, The Jakarta Post reported that construction firm PT Astratel Nusantara (Astra Infra) became the sole shareholder of PT Baskhara Utama Sedaya (BUS), acquiring 60% shares from PT Karsa Sedaya Sejahtera (KSS) and PT Nusa Raya Cipta (NRCA), in a transaction then worth Rp 2.56 trillion (roughly USD $182 million).

That would put CPPIB's 45% stake at those valuations at roughly USD $137 million but I'm sure it paid more since valuations increased over the last two years (however, so did the USD relative to the Indonesian rupee).

Why invest in an Indonesia toll road? For one, unlike China which has dangerous demographics, India and Indonesia have a demographic dividend and will experience a nice demographic boom over the next few decades.

I've already discussed why CPPIB and the Caisse are vying for GIP’s toll roads portfolio in India. PSP Investments's Roadis, signed a deal with India's National Investment and Infrastructure Fund (NIIF) creating a $2 billion platform that will invest in road projects in India.

A friend of mine, an expert on toll roads, shared this with me back then:

"In developed countries, most families already have one or two cars. Your toll roads and other infrastructure projects typically grow with GDP, so your gross return will be GDP growth + CPI inflation. In developing countries like India (and Indonesia) where demographics are favorable, industrialization is taking place and lots of people still don't own cars, you can still collect very nice returns on toll roads. You will get GDP growth + CPI inflation + increases from tolls + as more people begin buying one or two cars, it will generate more traffic on these highways and profits will increase commensurately. It's a long-term project in a growing economy with great demographics."

But my friend also warned: "However, sponsors tend to be too optimistic in their financial models and raise tolls too quickly (i.e charging more than the economy can bear). This usually has a negative impact on demand."

We shall see but CPPIB and other large Canadian pensions are increasingly investing in private markets in India and it makes sense to include Indonesia in the mix. For a debut investment, this will turn out to be a great long-term investment.

Below, Indonesia is the world’s largest Muslim country by population and is one of South-East Asia’s most dynamic economies. Watch this clip and you will understand the opportunities and risks of investing in Indonesia.

Also, take a drive on the Cipali toll road from the Dawuan Interchange to the end of the Cipali toll road. Pretty cool that Canadians are invested in this toll road through their national pension fund.