Ahead of an accelerated ban on Indonesian nickel ore exports in 2020, speakers at a Chinese mining conference said investment will continue to flow into the Southeast Asian country's nickel sector to secure resources for China's stainless steel and electric vehicle industries.
In an interview on the sidelines of the China Mining Conference and Exhibition in Tianjin, Michael Carl, a senior adviser with Indonesian law firm SSEK, which specializes in M&A, said he expects more Chinese companies to go the route of Tsingshan Holding Group Co. Ltd. and Zhejiang Huayou Cobalt Co. Ltd. in setting up mines and smelters in Indonesia, the world's largest nickel producer.
During a panel discussion, Carl said there is a "natural synergy" between China and the Indonesian mining industry. "Thanks to China, Indonesia now has a vibrant smelting industry, and thanks to Indonesia, China can dominate the industry and import commodities to support the development of its economy."
Of the 27 existing Indonesian smelting projects, including those for bauxite, copper and nickel, 90% use capital coming from China, according to Carl.
From a legal perspective, Carl said the most important thing Chinese companies should be aware of when investing in the Indonesian resources sector is the shareholding structure. Smelters in Indonesia can be fully owned by foreign entities, and there is no need for investors to find a local joint venture partner to work with. However, mining companies can only be fully foreign-owned when the investors establish a new company in Indonesia to bid for a mining license, Carl said.
Carl's view was echoed by Philip Liu, an associate director at Deloitte & Touche Financial Advisory Services, who believes that more Chinese companies will consider M&A for nickel assets in Indonesia in the near term as China continues to develop its Belt and Road Initiative. But Liu believes that the broader M&A picture for the Asia-Pacific commodities markets will still be dominated by transactions in coal and gold.
"With the Belt and Road Initiative expanding, Chinese companies will invest more in those participant countries like Indonesia as the local governments will offer more supportive policies for Chinese investment," Liu said in an interview and noting that the ban would draw more Chinese companies to the country once it takes effect.
Launched by President Xi Jinping in 2013, the Belt and Road Initiative is China's multibillion-dollar plan to connect itself to the rest of the world by building roads, port terminals and other infrastructure as part of investments across the globe.
