Indonesia is on the lookout for new capital

Following the departure of Japan’s Softbank Group, the Indonesian government is scrambling to recruit new investors for its multibillion-dollar new capital city project. The government is appealing to Saudi Arabia and the United Arab Emirates (UAE) to bridge the finance deficit, according to Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan.

The government was seeking to secure cash from the UAE and Saudi Arabia that were originally slated for Softbank’s Vision Fund, but which Softbank had trimmed due to problems with several of the group’s portfolio companies.

The Middle Eastern country planned to invest more cash through the Indonesia Investment Authority (INA) and attract in international partners, including China.

SoftBank’s departure was a setback for the capital relocation plan, as the Japanese firm was reportedly prepared to invest between US$30 billion (RM126 billion) and US$40 billion (RM168 billion) in the new capital, accounting for a significant portion of the initial development costs.

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The cost of constructing the capital’s basic infrastructure is anticipated to be 466 trillion rupiah (US$32.6 billion or RM136.4 billion). The government intends to cover one-fifth of the bill with state funds, leaving the remaining four-fifths to private capital.

SoftBank founder Masayoshi Son is no longer a member of the new capital’s steering council, according to Luhut. The administration was looking for someone to succeed former British Prime Minister Tony Blair and Abu Dhabi Crown Prince Mohammed Zayed Al Nahyan.

SoftBank exited the new capital initiative at a time when its stock had fallen by roughly 60%, dragged down by the stock price declines of portfolio businesses such as Didi, a Chinese ride hailing startup, and WeWork, a US-based coworking space.

However, due to tumultuous global economic conditions, including a continuing geopolitical crisis, commodity price spikes, and monetary tightening, it is currently challenging to find investors.

In the worst-case situation, the government may be forced to increase the project’s state budget commitment to 80% or 90%, either directly or indirectly through state-owned firms.