Nickel companies are a driving force behind what is being seen as a record year for public listings in Indonesia, with the listings pointing to the opportunities in the country's blossoming nickel industry. And this is keeping both mining and capital markets lawyers busy.

A flourishing nickel mining sector in Indonesia, triggered in significant part by the booming electric vehicle (EV) industry and the ongoing green energy transition, is having a major impact on privately held companies launching initial public offerings (IPOs) and helping them raise capital from global investors eager to join the green energy economy.

Powered by nickel, Indonesian mining companies have already raised 100 times more money in 2023 than in the previous two years.

Indonesia introduced a ban on nickel exports in 2020, but it was quickly challenged in international courts, proving how relevant the mineral has become for the future of a world that demands it not only for electricity storage but also for traditional construction.

"These measures unduly and illegally restrict EU access to raw materials needed for stainless steel production and distort world market prices of ores," says the European Commission in late 2022, after a WTO panel ruled against nickel export limitations introduced by the government in Jakarta.

Despite the legal dispute around nickel ore exports, Indonesia's EV battery industry has continued gaining traction and attracting worldwide attention from investors. The mineral is a cornerstone for several large-scale projects in the country, which stands as the largest consumer of nickel ore in the globe.

Adjusting to this changing dynamic, Southeast Asia has taken steps to adjust its legal framework to cope with the challenges that lay ahead for the sector.

"The Indonesian Government has introduced a range of strategic initiatives to support the development of the downstream EV battery value chain, including banning the export of unprocessed nickel to encourage the production of domestic value-added products and imposing a progressive export tax on low content nickel products to further encourage downstream investment in Indonesia," Jeremy Wang, counsel at Latham & Watkins in Singapore, tells ALB.

"To take advantage of the government's focus on developing the downstream nickel industry, we see issuers expanding their operations along the EV battery value chain through the development of downstream expansion projects," adds Wang, who explains that for such issuers, as their pipeline of downstream projects may still be under construction or development, projections may have to be presented in a technical report to educate investors on the potential upside of these pipeline projects.

A May 2023 report by Standard & Poor's shows that Indonesian mining companies have raised a staggering $1.36 billion in 2023, compared to just $13.8 million in 2022 and $13.1 million in 2021.

"Within this year, two nickel mining Indonesian companies have become listed in the Indonesia Stock Exchange (IDX), and the nickel reserves in Indonesia give significant potential for nickel mining companies to expand in the market, in line with the rapid development of technology in nickel processing," says Tunggul Purusa Utomo and Intan Paramita, partners at Assegaf Hamzah & Partners.

PT Trimegah Bangun Persada (also known as Harita Nickel), and PT Merdeka Battery Materials, are two nickel mining companies from Indonesia that went public in the first half of the year, raising over $1.3 billion. AHP advised the issuer in the latter IPO.

"In the IPO of PT Merdeka Battery Materials, we received support and positive responses from the central and regional government; hence its IPO eventually closed in a timely manner, for instance, from the Minister of Energy and Mineral Resources, the Financial Services Authority, as well as the Indonesia Stock Exchange," say the partners at AHP.

"As the global demand for nickel material continues to rise, the opportunity for nickel mining companies to raise funds from the capital markets sector will continue to grow, and we may see other nickel mining companies or nickel-related industries listing their shares in the Indonesia Stock Exchange," they add.

POSSIBLE PAUSE

Although the sector is booming and mining-related IPOs in Indonesia have momentum, a pause is possible during the presidential elections next year.

"It remains to be seen if this hot run will continue in the long run – I suspect the momentum will be halted temporarily by the Indonesia elections scheduled to take place in early-2024, with issuers getting preparations underway in the second half of this year but adopting a wait-and-see attitude until after the elections before going to market," says Wang, from Latham & Watkins.

The stability of the legal framework beyond the elections will be key for the sector's continuous growth and for more nickel ore-related companies to raise funding by going public.

Legal struggles, such as the lawsuit introduced by the European Union at the WTO to lift the ban on nickel exports, are just some of the challenges Indonesia is likely to continue facing, and could have an impact on the development of nickel-ore-related companies down the value chain. Meanwhile, a limited free trade agreement on minerals with the U.S. is in the works between Jakarta and Washington, D.C.

NICKEL-PLATED FUTURE

Despite this, investors and lawyers remain bullish on the prospects of nickel in Indonesia, which is the largest producer of ore in the world. In 2022, the Southeast Asian nation produced 1.6 million tons, and according to the U.S. Geological Survey, the country has 21 million tons of nickel ore reserves.

Meanwhile, data from Natural Resources Canada shows that Indonesia was also the largest consumer of nickel ore in the world in 2021, accounting for 37 percent of the global demand for the mineral. Earlier this year, PT Vale Indonesia, China's Zhejiang Huayou Cobalt and U.S. carmaker Ford unveiled plans to establish a $4.5 billion nickel processing plant in Pomalaa, Southeast Sulawesi, where Vale operates a nickel mine.

 According to Cullen S. Hendrix, a senior fellow at the Peterson Institute for International Economics (PIIE), Indonesia's industrial policy and export controls may be expanded deeper down the EV supply chain.

"Plans to develop a domestic EV battery industry include taxing ferronickel exports—a refined, higher value-added nickel product used in EV batteries—as a means of providing lower-cost inputs for Indonesian industry. Unlike outright export bans, such a tax would be WTO-compliant," wrote Hendrix in an analysis published in late April by the PIIE.

"As the global demand for nickel material continues to rise, the opportunity for nickel mining companies to raise funds from the capital markets sector will continue to grow, and we may see other nickel mining companies or nickel-related industries listing their shares in the Indonesia Stock Exchange."

Tunggul Purusa Utomo and Intan Paramita, Assegaf Hamzah & Partners

According to Tunggul and Intan at Assegaf Hamzah & Partners, as the global demand for nickel material continues to rise, the opportunity for nickel mining companies to raise funds from the capital markets sector will continue to grow.

"And we may see other nickel mining companies or nickel-related industries listing their shares in the Indonesia Stock Exchange," they say. "Being publicly listed will attract public investors to invest in Indonesia, and also potential partners to cooperate with the nickel mining companies, thereby creating a competitive market."

"In addition to financial institutions such as conventional banks, nickel mining companies may also consider seeking funds from other methods in the capital markets sector," they explain.

Tunggul and Intan say nickel mining companies willing to go public must fulfil a pre-requirement of obtaining a mining license. There lies one major difference with non-mining companies going public in Indonesia.

"Generally, the capital market regulatory frameworks for nickel mining companies entering the Indonesian capital markets are the same as other industries. Industry-specific requirements for mining companies designed to ensure the sustainability of the business, which include the preparation of industry consultant and technical review reports from independent consultants," they add.