INDONESIA is set to wrap up the year as one of the top performing capital markets in Asia – this is spite of lingering fears of terrorism as well as an undercurrent of domestic political instability for the most part of the year.
Still touted as the region’s “growth proxy” alongside the Philippines amid a backdrop of a weaker global economic environment, Indonesia has made tremendous inroads in attracting capital and assets into the country this year.
Led by its progressive president Joko ‘Jokowi’ Widodo, the current administration looks to have shaken off years of bureaucratic red tape and other legacy issues to turn the country into a top investment destination.
Key initiatives by Jokowi, particularly a series of multi-billion infrastructure projects as well as crucial land reforms, has been received well by investors.
To date, the Jakarta Composite Index (JCI) has posted a return of 11%, making it one of Asia’s best-performing stock markets.
Interestingly, despite the recent currency shock brought by the surprise victory by Donald Trump in the November US presidential elections, the rupiah is still currently up by 2.5% for the year, again bucking the regionaltrend of underperformance against the US dollar.
While concerns remain over the presence of ‘hot money’ and high foreign ownership in Indonesian capital markets, investors currently have few options elsewhere if they are keen on the high yields offered by both the sovereign bonds as well as the rupiah.
Although Jakarta was rattled by the January terrorist attacks and a series of foiled attempts by Islamic radicals throughout the year, investors remained enthused over the country’s outlook as shown by new capital inflows into the country.
The ongoing blasphemy trial of Jakarta’s Christian governor Basuki Tjahaja Purnama, while seen as a crucial litmus test for the country’s religious tolerance, also did not impact financial markets in a significant way.
On Dec 21, Fitch Ratings affirmed the country’s sovereign debt ratings at ‘BBB-’ but revised its outlook to “positive” from “stable”.
It attributed the positive re-rating to Indonesia’s low government debt burden and favorable economic growth outlook, while structural reforms are gradually improving the country’s business and investment climate.
The advances were aided by an ambitious tax amnesty program which has largely succeeded in boosting domestic liquidity despite strong initial skepticism. Some US$261bil in assets held by Indonesians overseas were declared during the first three months of the scheme’s introduction, beating expectations.
As at Sept 28 this year, the Indonesian government collected some US$6.5bil in additional tax revenue under the program. A further US$10.9bil in assets were also repatriated back into the country, thus considerably improving domestic liquidity.
Between June and December this year, the government raised some US$7.70bil in three rounds of new debt issuances. The deals constituted three of the top four capital raising exercises in the debt capital markets.
The top ten deals in the debt markets raised some US$12.8bil. Among the notable debt issuances in the corporate space include Listrindo Capital BV which raised US$550mil and Theta Capital Pte Ltd which raised US$425mil.
A government owned entity, Perusahaan Penerbit SBSN Indonesia III, raised US$2.5bil in Asia’s largest dollar sukuk issuance of the year.
The firm was established for the purpose of issuing Shariah-compliant securities in foreign currencies and is backed by state owned assets.
The renewed bout of optimism for Indonesia was demonstrated in its vibrant mergers and acquisitions (M&A) scene. The top 10 deals in the country for the year were collectively worth US$5.12bil.
It is notable that Credit Suisse were the lead advisers in six out of the top 10 deals, which underscored the investment bank’s dealmaking prominence in Indonesia.
The banking group’s Asia Pacific CEO is Indonesian Helman Sitohang, who has long maintained a bullish outlook on his home country’s capital market prospects.
With the upturn in the prices of commodities this year, particularly in gold and other minerals, dealmakers in Indonesia have made bold bets to secure mining assets to ride on the positive price trend.
The biggest M&A deal of the year is PT Amman Mineral Internasional’s US$2.6bil acquisition of PT Newmont Nusa Tenggara which runs the operations for the massive Batu Hijau copper and gold mining complexes in the country. The major consequence of the deal is that the mine is now fully owned by Indonesian entities.
The next-biggest M&A deal also came from the mining sector with the US$775mil acquisition of PT Agincourt Resources by EMR Capital & Marlin Australia Holdings. PT Agincourt operates the Martabe gold mine in western Sumatra which began production in 2012.
Meanwhile, the country’s equities markets saw a dearth of new high-profile listings during the year. Some US$1.92bil were raised out of its top 10 deals in the equities space, with US$774.1mil coming from just three initial public offerings (IPOs).
The largest IPO this year was the US$395mil listing of PT Waskita Beton Precast Tbk, the concrete precast unit of state-owned builder Wasita Karya. The company is banking in on Indonesia’s infrastructure boom and has already secured US$821mil in new contracts this year.
In second place was PT Cikarang Listrindo Tbk which raised US$265mil from its IPO. It is the first power plant company to attain public listing in the Indonesian market.
The biggest placement of the year was undertaken by PT Telekomunikasi Indonesia Tbk in a US$246mil exercise, followed by PT Matahari Department Store Tbk in a US$226.9mil placement exercise.
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