London
CNN
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One of the hottest IPO markets this year is not in a country full of global tech giants, nor does it rank among the top 10 largest economies in the world by size.
But Indonesia, a cluster of islands with a large population and a fast-growing economy, has vast deposits of metals needed to make batteries for electric vehicles. This has made the country an important driver of the global green transition – and a magnet for investors.
According to data from Dealogic, the Southeast Asian country is currently the world’s fourth-largest market for newly listed companies by amount of capital raised, behind leaders China, the United States and the United Arab Emirates.
For the first time since 1995, it has overtaken Hong Kong — long one of the top IPO markets — and is overtaking economic powerhouses India, South Korea and Japan.
“It’s not normal,” said Perris Lee, who focuses on Asian equity markets at data provider Dealogic. This year, he told CNN, “will probably be … the best for Indonesia ever.”
Investors have poured $2.1 billion into Indonesian IPOs so far this year, he said. That’s just short of the $2.2 billion the country’s companies have raised throughout 2022, with at least five more major IPOs planned in 2023.
Part of Indonesia’s IPO success this year can be explained by poor performance elsewhere.
Investors have pulled out of stock markets over the past year as rising interest rates have pushed up the cost of capital.
The US IPO market, typically the largest in the world, has suffered due to its reliance on particularly interest-rate-sensitive tech companies, Lee said. Hong Kong, meanwhile, has been held back by poor ratings and a legacy of strict Covid lockdowns, he added.
But Indonesia’s strong performance this year also rests on its fundamental advantages.
Many of the companies that went public were metals producers, buoyed by last year’s boom in commodity prices.
Adek Berry/AFP/Getty Images
A factory of the state mining company Antam in Pomalaa on the island of Sulawesi
Indonesia has nearly a quarter of the world’s nickel reserves, equal only to Australia’s riches, and has vast deposits of cobalt and copper. All three metals are used to make the batteries in electric vehicles, while copper is also a key material in solar panels and cobalt is an essential part of the magnets in wind turbines.
Mining company Harita Nickel raised $660 million in its market debut last month, Indonesia’s biggest IPO so far this year. Since then, the company’s share price is up 29%, according to data from Dealogic. According to Dealogic, Amman Mineral International, a gold and copper mining company, is expected to raise $1 billion when it goes public later this year.
The Indonesian government has been instrumental in attracting investors, accelerating the privatization of state-owned companies through IPOs and encouraging foreign battery manufacturers to invest in the country.
It has also made a long-term attempt to create a cartel of nickel-exporting countries, akin to the Organization of the Petroleum Exporting Countries (OPEC), that has major influence over global oil prices.
“A large chunk” of Indonesia’s IPOs this year were due to the listing of a number of state-owned companies, Roderick Snell, emerging markets investment manager at Baillie Gifford, told CNN.
“Adding you to the list should lead to an improvement [corporate] Efficiency over time… resulting in significant investments in the country that we have never seen before,” he added.
Bay Ismoyo/AFP/Getty Images
The main venue of the Association of Southeast Asian Nations Summit in Labuan Bajo, Indonesia, photographed on May 9, 2023
Since his election in 2014, President Joko Widodo has imposed multiple export bans on raw materials to force foreign companies to process the materials in the country, attracting foreign investment and increasing the value of the end product.
Most recently, in 2020, the government banned the export of nickel ore. It is also planned to introduce bans on the shipment of copper, iron and aluminum ores.
Widodo’s plan seems to be working: In 2022, total foreign direct investment (FDI) in Indonesia reached $44 billion, an all-time high and a 44% increase from the previous year, according to data from the Indonesian Investment Coordinating Board. The bulk of this investment went into the country’s metals sector.
So far, Widodo’s commodities trade policy alone has attracted $25 billion in foreign direct investment, Snell wrote in a note in April.
“Our increasing belief in [Indonesian companies] comes from how the government maximizes the potential of its abundant resources,” he wrote.
Emily Fletcher, fund manager at BlackRock, agrees.
Around 17% of the holdings in Fletcher’s fund, which invests exclusively in smaller emerging markets, are currently in Indonesian companies, making up the largest share by country.
“Indonesia is moving up the value chain in terms of what it exports,” she told CNN. “It’s something we expect to continue.”
Fletcher said the value of Indonesia’s nickel exports has risen sharply over the past two years as the country has done more of the processing in the country. This jump in value is “very exciting,” Fletcher said, in part because it helped narrow Indonesia’s current account deficit.
“[Indonesia] “We will be much less dependent on external credit when the current account deficit disappears,” she said, adding that the change has the potential to boost GDP.
It’s not just the country’s metals that are attracting investors. Indonesia’s economic output has grown by an average of 4.3% over the past decade. It has a huge young population – at 274 million people it is the fourth most populous country in the world – and a growing middle class with money to spend.
According to the World Bank, the number of economically secure Indonesians tripled between 2002 and 2016 to 52 million. This group now accounts for almost half of domestic consumption.
It’s no wonder, then, that the majority of the stocks in Fletcher’s fund are focused on Indonesia’s domestic economy.
“We’re still seeing an acceleration in the domestic economy and as a result, we’re seeing earnings at many of the companies we hold that are ahead of analysts’ expectations,” she said.
Indonesia has also made great strides in another respect. A decade ago, it scored poorly in the World Bank’s Ease of Doing Business Index, which measures how easy it is for businesses to comply with local regulations, noted Ian Hiscock, head of China and Southeast Asia advisory at CRU, a market research firm.
“Since then, the country has made tremendous progress,” he said. “I expect that people in the West will learn more about Indonesia in the years to come.”
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