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A Shining Year -“ Gold, nickel, copper and the likes propelling Indonesia’s 2023 IPOs

With a handful of mid to big-ticket initial public offerings (IPOs) – mostly from commodities miners – lining up for the rest of 2023, the stock exchange of Indonesia, the world’s fourth most populated country, look set to have its best year ever in terms of listing proceeds.

Driven by President Joko Widodo administration’s efforts to monetize state-owned commodity assets ahead of early-2024 polls, and commodity prices that remain higher than pre-COVID levels despite recent pullback – thanks to growing sales of electric vehicles globally – Indonesia had priced 32 IPOs raising USD 2.12bn this year to date (24 May). This is just shy of the USD 2.23bn the Jakarta exchange achieved last year.

Year to date, Indonesia – the world’s 16th largest economy – has taken over Hong Kong to become Asia Pacific’s No. 2 IPO market, after only China’s A-share market. Hong Kong has thus far raised a mere USD 1.85bn from new-stock listings, Dealogic data show.

“This year has a lot more (deals in the) pipeline, so the promise is there,” said an investment banker in Jakarta.

Of the new listings priced thus far this year, a hefty 60% came from metal and steel processing, followed by utility and energy which contributed 28.06% of the total proceeds, while the mining general sector made up 1.7%, according to Dealogic data.

A second banker acknowledged that commodities will still be attractive. But that love is not blind.

Enthusiasm about commodities “is tied to the electric vehicle story, not commodities per se,” he said. “Coal will not fly anymore. Nickel, copper, yes.”

Whether the positive vibes surrounding Indonesian IPOs will carry well into the second half of 2023 and beyond will hinge on a few factors.

First and foremost, there is growing sense of wait and see among issuers and investors ahead of elections early next year. Post-listing performance of the newly listed IPOs is becoming a nagging issue for many investors. Last but not least, a murky global economic outlook.

“People are selectively deploying capital due to its cost,” the first banker added. The three largest IPOs priced this year were backed by strategic interest, with 60%-70% of their books filled by strategic investors.

PT Pertamina Geothermal Energy Tbk, a geothermal power plant operator, raised USD 595m from an IPO priced in February, the first large size listing from the country this year. PT Trimegah Bangun Persada Tbk (Harita Nickel), a nicker miner, followed suit, pricing a USD 659m IPO in March, while PT Merdeka Battery Materials fetched USD 614m from an April IPO.

Other than these three jumbo IPOs, the rest of the 2023 IPOs were smaller than USD 50m each, according to Dealogic.

While a fragmented market makes it rather challenging for Indonesia to attract the usual foreign ECM investors, post-listing performance could be a bigger issue.

Among the top three IPOs this year, Pertamina Geothermal has lost 5.7% since debut, while Harita Nickel has shed 31%, while Merdeka Battery Materials fared slightly better, off 2.5% since listing.

As these kinds of companies are new to the Indonesia IPO market, their listings require bigger participation from anchor investors – many of whom are strategics who understand the sectors better compared to other investor types, said a third banker.

“Hence somehow it was difficult to see strong subscriptions,” he said.

But the first banker warned that valuations need to be reasonable, and certainly can’t be based on 2022 commodity prices. Commodity prices peaked in June 2022, according to a World Bank report

The third banker said Jakarta’s IPO market will likely peak this year.

“I don’t think we’re going to see a similar year in the next three to four years,” he said.  Most of the deals come from the biggest group and state-owned enterprises; so what else is left to IPO?”