Economic Challenges and Political Unrest in Indonesia

Good morning from the Financial Times. Today is Wednesday, july first. and this is your FT news briefing The head of NATO says Europe's rearmament is good for the U. S.. Bending spoons is going public We're all about bringing struggling companies back to life Plus, investors and Indonesians are growing impatient with President Proo Subillanto If the currency weakens significantly, then we could see more social interest Filipino and here' the news you need to start your day. Mark Ruta says NATO is doing good things for the American economy. Secretary General of the Alliance spoke to the FT recently A hundred of the ninety five thousand jobs being supported by EU and Canadian European and Canadian investments in the defence industrial base in the US He says those jobs are supported through three hundred billion dollars in arms orders. Ruta visited the White House last week to address America's frustrations with NATO President Donald Trump has criticized Allies for not being supportive enough during the U. S. war with Iran Eespecially the ones that didn't let American warplanes use their airspace or military bases. What I sense generally in the US is disappointment when it comes to what I would say are isolated cases where Europeans did not always fulfill what was bilaterally agreed Previously when it comes for example to Beiing agreements, NATO will hold a leader summit in Turkey next week. AOL and Vimeo are coming back to Wall Street. Both were acquired last year by a company called Bending Spoons, an Italian tech conglomerate Betting Spoons is going public today, and the head of the FT's Lx column, John Foley, describes it as an emergency room for critically injured tech businesses. He joins me now. Hi, John Hi there John, I love that description. Why is beending spoons an emergency room for critically injured tech businesses. Well, when you think about hot tech stocks, you tend to think of visionary owners coming up with great ideas for new business models. Bending Spoons is a tech company, but what's interesting about it is that it actually takes kind of old has been businesses that aren't doing very well anymore and it recuperates them, it rehabilitates them, it guts them from the inside, rebuilds all of their code tries to spruce at their products and squeezes new financial returns out of them. So far from being about creating something new, it's actually taking things that are old and trying to get new life out of them John, this is clearly out of the private equity playbook in the sense that it guts and then rebuilds companies Given the struggle that PE has seen lately Why would any investor be interested in that Well, when you look at the numbers that they've published and their filing ahead of their initial public offering, there is some really impressive growth going on, right? So their revenue went from under four hundred million dollars in twenty twenty three to on an annualized basis, it's going to be about two point four billion doars this year One of the things that investors have to be a bit cautious about is that this company is growing really quickly. Its business model is that it goes out, it takes on debt and it buys businesses like AOL, like VimeO, like Evernote, and it builds an ever bigger portfolio of companies that are all going through the kind of critical care process. and that makes it very hard to see on an underlying basis how one of its individual investments is doing. You just have to trust that that growth, which is inorganic growth, that's coming through acquisitions is also being matched by underlying improvements that are sustainable. And it's really hard to know at this point whether that's the case. John, what differentiates Bnding spoons from a private equity firm in terms of strategy Well, there are two differences really between Bnding spoons and private equity. One is that Bnding Soons really focuses on the idea that there are coders and engineers who actually rebuild these companies insides from a technical points of view. But the other really big difference that I think is really interesting here is that private equity buys companies, piles debt on them, and then it sells them after a few years.ingoons It does the first bit, but it doesn't sell companies So the founder Luca Ferrari says that they've never sold a business and they don't intend to. And if you think that the problem for private equity companies at the moment is that they just can't sell the businesses they' bought, well, that's not a problem here because Bnding Spoons never intended to sell Of course, the question then is, can you get the same kind of returns over time if you're not flipping businesses like burgers and just benefiting from prices going up between the point when you bought and the point where you sell. Yeah, I mean, I would love to see the sales pitch to get people back on AOL, right or using AOL products. Like that's quite an uphill battle. Well, that is the special source right? And what they do is they crank up prices. So they take products that people are kind of hooked on Evernote is an example. It's like a note online organizer that once you're using it, you're kind of dependent on it because it has all of your stuff in there. And then they improve the product, yes, but they also ratchet up the price So the idea is that sticky customers will pay more rather than pull the plug on the service that they're Gota So what are you looking out for as the company goes public today and beyond, I guess Well, I think there will be a lot of interest in bending spoons. Apart from anything else, it's a very rare European tech story and there aren't many of those in the market. The flip side of that is will American investors care very much? So it could be in for a volatile ride. I think what we'll be waiting to see though is over the longer term, can they show that sustainable improvement in profitability at the companies they buy Jhn Foley is the head of the FT's Lux column Thanks much, John Thanks Speaking of IPOs, the French German take maker KNDS might have to delay its market listing The company is having a hard time convincing investors to back its initial public offering valued at more than twelve billion euros The FT has learned that some investors told KNDS this week they believe it will be worth less than that amount defeense manufacturers crucial, German owners have said they won't go ahead with a flatation valued below twelve and a half billion euros KNDS has been planning to launch its IPO bid this month, and it was expected to be one of the biggest in Europe in recent years But a shift away from heavy machinery and warfare towards cheaper drones is spoiling investor enthusiasm The Indonesian economy is struggling and it's affecting the political climate there country is waiting on a decision from the global index provider MSCI. It could downgrade Indonesia from an emerging market to a frontier one Protesters are waiting to draw their conclusions students have been leading demonstrations to voice their anger with President Prooo Subianto. Antha locks me as the FT's Jakarta correspondent. She joins me now to discuss what's been happening there. Hi, Antha Hi So let's start with a big picture of the Indonesian economy. How bad are things there So if you look at the GDP numbers coming out of Indonesia, they're still stable at around five percent as it has been for most of the past decade. But I think things are a bit different on the ground The Rupa currency has hit multiple historic blows this year, mostly because investors are quite worried about the policy direction of President Tbo Sobianto He's focused on a lot of expensive welfare policies, which are well intended, but unfortunately, the rollout has been marred by corruption allegations And in the case of his flagship free meals program, there have been thirty seven thousand incidents of food poisoning, mostly students. So that's caused a lot of anger among the public, but it's also raised a lot of concerns among investors because they think the government is not spending funds on the right projects Yeah, tell me a little bit more about those investor concerns. In particular, Indonesia is the worst performing stock market globally this year with a lws of around thirty percent. In FDI investors, on the other hand, they' also concerned about creeping state control in the private sector, especially in the resources industry So investors are concerned about the macroeconomic policies and the fiscal strength of Indonesia. becausecause of Probo's focus on welfare schemes, which are very expensive They' worried that Indonesia could breach its fiscal deficit limit self imp limit of three percent. And Indonesia has spent a lot of time building that confidence among investors that it can stay fiscally disciplined since the Asian financial crisis, but now they're worried that that discipline is going out the window The Iran war has also complicated things because Indonesia provides a lot of fuel subsidies which costs a lot from the state budget. And now as oil prices go up, the spending that the government has to make on the fuel subsidies is also going up. Okay, so what are Indonesians saying and doing about this The weaker Rupia in particular is affecting lots of Indonesians. Just about two years ago Proobo did win a landslide victory in the presidential election. and initially his welfare policies were very popular among the public In June, we have seen a lot of protests, mainly led by university students protesting about Pbos economic policies, but also in particular about the free meals program. The turnout has been small, but I think they still carry a lot of significance becausecause these students, they're emerging as one of the few voices of opposition in Indonesia. In Parliament, there's essentially no opposition because President Tubbo has put together a coalition that has near full control of the legislature. Okay, so then how are you expecting things to play out overver the next couple of weeks and months In terms of markets, I think there's going to be a lot of uncertainty because there's still the overhang of the pending decision by MSCI on whether to downgrade Indonesia to a frontier market If it does happen, there could be massive outflows, which could further hurt sentiment and affect the currency further On the streets, I think we could continue to see small protests, again, primarily led by students, but if the currency weakens significantly then we could see bigger turnouts and more social unrest Antha Laksme is our Jakarta correspondent. Thanks, Antha Thanks for having me You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT news briefing. Check back tomorrow for the latest Business news