Is Indonesia's IPO future as bright as it looks, as Harita Nickel makes glittering public debut?

The successful initial public offering of Indonesian nickel producer Trimegah Bangun Persada, also known as Harita Nickel, underlines just how promising the IPO scene in Southeast Asia's biggest economy is, amid a dearth of listings elsewhere in Asia.

Harita's share price opened trading at 1,360 rupiah on Friday, a gain of 8.37 per cent from the opening price of 1,250 rupiah.

Ahead of the listing, Harita Nickel collected 9.997 trillion rupiah (US$673 million) in IPO proceeds, making it the largest IPO on the Indonesia Stock Exchange (IDX) so far this year, bigger than the 9.06 trillion rupiah raised by Pertamina Geothermal Energy, the subsidiary of state-owned oil and gas company Pertamina, when it went public in February.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

Harita's debut has also underscored investors' appetite in Indonesia's electric vehicle (EV) battery sector, the cornerstone of President Joko Widodo's economic policies whereby he aims to develop a robust domestic EV supply chain rather than just exporting raw materials.

With its joint venture partner, Chinese mining company Ningbo Lygend Mining, Harita runs Indonesia's first high-pressure acid leaching (HPAL) plant on Obi Island in North Maluku province. The smelter is capable of processing low-grade nickel into mixed hydroxide precipitate (MHP), which can be used in EV battery production.

The company is planning to use the money raised from the IPO to pay off loans and expand its MHP production capacity from 60,000 tonnes to 120,000 tonnes of processed nickel by 2024.

Another in the pipeline to list on the Jakarta bourse is PT Merdeka Battery Materials, also a nickel producer. It is expected to debut on April 18, aiming to raise as much as US$637 million.

Chinese battery giant and Tesla supplier Contemporary Amperex Technology Limited (CATL) is a minority shareholder in Merdeka Copper Gold, the parent company of Merdeka Battery.

Harry Su, managing director and head of equity capital market at Jakarta-based financial advisory group Samuel International, said Harita's gain on its stock exchange debut was due to "its nickel background".

"EV [sector] is currently in at the moment, and investors are looking to invest in this growing sector," Su said.

While the IPO boom was "extremely exciting" he cautioned investors, saying the next big IPOs carry more risks than their predecessors.

"We're going to have a lot of IPOs, that in itself is actually quite concerning to me, because I think the amount of money is limited. Unless you are in the hot sector, it might be difficult for you to fundraise," Su said.

"With large IPOs, it will be more difficult to be more successful. If it's not really hugely oversubscribed then it may be difficult for the share price to actually perform."

Other companies slated to debut on Indonesia's stock exchange include state-owned firms Pertamina Hulu Energi (part of Pertamina), reportedly planning to raise as much as US$2 billion, palm grower Palm Co, a subsidiary of PT Perkebunan Nusantara III, and fertiliser firm Pupuk Kalimantan Timur.

The latter aims to raise US$500 million from the public. Copper and gold miner Amman Mineral International will also launch an IPO this year, worth up to US$1 billion.

The Indonesian bourse has recorded US$1.45 billion - excluding Harita's Wednesday activity - in IPO proceeds between January and March, its highest-ever first-quarter tally and nearly twice the amount raised in Hong Kong, according to Bloomberg.

The IPO market in Indonesia is proving to be a bright spot amid the stuttering global IPO market. According to accounting firm Ernst & Young, global IPO proceeds in the first quarter were down 61 per cent year-on-year to US$21.5 billion.

The company chalked up the slowdown to "interest rate rises, a lukewarm stock market, entrenched inflation, and unexpected global banking industry turbulence".

"We are really excited about the region, because countries like Indonesia and countries like Thailand, these are places where you see real growth coming back in a very meaningful way," Sunil Khaitan, Southeast Asia's managing director and head of equity capital markets at Bank of America in Singapore, told Reuters.

Swiss commodities trader Glencore and US asset manager Fidelity reportedly took part in Harita's oversubscribed IPO.

Reza Priyambada, a Jakarta-based stock market analyst from CSA Research Institute, said growth potential in Indonesia's equity capital market had largely played a role in enticing foreign investors to participate in local IPOs.

"In general, we can say that [the IPO scene] in Indonesia is more interesting than other countries, especially if we look at the growth potential of our issuers," Reza said. "The capital market here is also still growing, compared to growth potential in the other markets, which may have matured."

He also pointed out that there are currently more than nine million retail investors in Indonesia, which highlights "the public's growing interest in the stock market" as well as increasing financial literacy in the country.

Listings of state-owned companies - which were typically associated with being rigid and bureaucratic - are being welcomed by investors too, indicating that such businesses are striving to improve efficiencies, said Samuel International's Harry Su.

"If you are a public company, a lot of analysts will be looking at you, the public will be looking at you - that in itself would actually provide improvement overall in the quality and management aspect of an enterprise."

However, it may be too early to say that Indonesia's IPO market is currently red-hot, Su added. While there have been 30 IPOs in IDX in 2023, the majority were small-sized offerings, he said.

And not all of the newly-listed shares panned out well. As of Thursday, Pertamina Geothermal's shares have been down more than 20 per cent since its market debut.

"If we exclude Harita and Pertamina Geothermal, the total [proceeds] from all the other IPOs was only three trillion rupiah (US$203.6 million), which means that the other IPOs are small [in value]," Su said.

"The IPO market is perhaps quite robust at the moment because a lot of people are trying to do it before the [February 2024] elections, but many of them are small-to-medium sized IPOs."

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.