Indonesia’s legal market – trends and opportunities

As noted by a source during the recent Chambers research, “Indonesia is at the apex of its growth and influence, shown by its hosting of the G20 summit in Bali. This is evidence of Indonesia’s rising influence on the geopolitical world stage.”

Based on interviews conducted with key market players during the most recent Chambers 2024 Asia-Pacific Guide research for Indonesia, this article sets out notable trends in Indonesia’s market and how these are impacting on the legal market, creating opportunities for lawyers and clients alike. Thank you very much to all the interviewees in Indonesia and elsewhere who took part in the research interviews, which were conducted during July and August 2023.

Several interviewees note Indonesia’s recent drive towards greener energy initiatives, especially the recent issuance of the MEMR 2/2023 regulation for carbon capture and storage (CCS) and carbon capture, utilisation and storage (CCUS) initiatives within Indonesia.

A source opines about the carbon capture storage regulations: “The new regulatory regime has helped promote those projects.” If current trends continue, lawyers focusing on Indonesia are likely to be advising on more and more CCS and CCUS initiatives going forward, guiding clients through the new regulations in this burgeoning space.

An interviewee reports: “We see more on renewables and the energy transition.” In terms of the type of renewable energy project, several sources note an increase in rooftop solar projects taking place in Indonesia, as well as hydropower and geothermal energy. A source notes that “hydrogen is at an earlier stage since there is no regulatory framework for it,” but Indonesia appears to have great future potential in this area too.

Separate commentators focused on banking and finance also mention that “Indonesian banks are getting active in sustainability-linked financings” and “we can see in project finance that there is a trend towards green finance.” Sustainability and green initiatives appear to be headline areas to watch going forward in Indonesia for legal practitioners.

Indonesia is the world’s largest nickel ore producer and has implemented an export ban on nickel in order to encourage the development of downstream nickel processing facilities (smelters) within Indonesia, including high-pressure acid leaching (HPAL) plants for the growing lithium-ion battery industry.

“There is a continued astonishing growth in the electric vehicle value chain,” says an interviewee, who continues: “A lot of downstream processing is based on the government initiative for companies to process their own mining facilities.” This trend seems set to continue going forward.

Interviewees also mention that data centre development in Indonesia continues to be a hive of activity, as well as infrastructure investments relating to roads (especially toll roads), ports and airports.  The creation of INA in 2021 (the Indonesian Sovereign Wealth Fund) was also mentioned during the recent research and is another interesting landmark in Indonesia’s development, pointing towards a continued uptick in infrastructure development.

It will be interesting to see how the much-publicised, continued development of a new capital city in East Kalimantan on the island of Borneo (called Nusantara), which is currently at a relatively early stage, will drive increased work for lawyers focusing on infrastructure. An interviewee says “Nusantara will need ports and airports, and the Indonesian government is posturing towards more openness to foreign investment, such as via the creation of INA.”

During the first half of 2023, Indonesia has seen by far the highest number (and proceeds from) IPOs among South-East Asian markets, with the 3 largest IPOs during this period occurring in Indonesia. These IPOs demonstrate the current strength of the nickel and electric vehicles (Trimegah Bangun Persada and Merdeka Battery Materials), and renewable energy (Pertamina Geothermal Energy), sectors.

A source also explains: “Much of the capital markets activity in Indonesia is driven by SOEs, and we are aware of a number of SOEs pursuing IPOs for their various units.” Pertamina Geothermal Energy is a recent example of an IPO by an SOE in Indonesia. Interviewees also report that, whilst “Indonesian equity markets have been a bright spot this year, it has been patchy on the high-yield (bond) front and all of Asia has seen a slowdown in terms of debt markets.”

Despite Indonesia’s impending election in 2024, interviewees by and large report that M&A activity has been relatively strong, with an indication that the investment policies of the candidates for the 2024 election are somewhat similar to the policies of the current regime. Again, sources report that SOEs are driving strong local activity and that there is strong domestic consumption, but cross-border M&A and private equity investments may be somewhat put on hold until after the elections.

Commentators suggest that venture capital growth has slowed in Indonesia, especially because of the so-called ‘tech winter.’ An interviewee expresses confidence however that, because “South-East Asian focused VC (funds) have raised dry powder, much of this will be invested in Indonesia.” Promisingly for lawyers based in Singapore with eyes on future Indonesian VC work that may arise, interviewees note that many Indonesian VC deals are structured using Singapore holding companies, and so this would require Singaporean qualified lawyers to advise.

Singapore and Indonesia are increasingly interlinked in another area – restructuring/insolvency. Interviewees cite different cases in recent years whereby Indonesia’s courts handling restructuring/insolvency matters have recognised Singapore-based restructuring/insolvency proceedings involving Indonesian companies. An interviewee says that “it is good news when you’d like the Indonesian court to be flexible and progressive rather than working in silo.”

Reflecting the busy market practice in Indonesia for restructuring/insolvency work, Chambers is introducing a new Indonesia Restructuring/Insolvency ranking table in our upcoming 2024 Asia-Pacific Guide. Chambers will be ranking both firm departments and individual lawyers who are handling this area of work, including out-of-court debt restructuring processes, as well as court-driven restructuring and insolvency proceedings.

Finally, the enactment of the Omnibus law, in the words of an interviewee in the employment sector, “aims to be more investor-friendly, because Indonesia has previously been known as a pro-employee regime.” Another source reports that labour disputes have arisen because of these changes in the regulations, since it is now easier for companies in Indonesia to take disciplinary action and terminate employees. This is another area to watch going forward.

Indonesia’s legal market continues to evolve and it’s notable that developments and regulations within Indonesia are also increasingly affecting other jurisdictions such as Singapore. This seems to be a positive indicator of Indonesia’s growing prominence. Chambers looks forward to keeping tabs on Indonesia’s market and reflecting the market trends in the rankings coverage.

The Chambers 2024 Asia-Pacific Guide will be published on chambers.com on 14 December 2023. Our Indonesia coverage covers a broad range of different practice areas, including sections for firms and lawyers based in Indonesia, as well as Indonesia-focused experts based abroad. The coverage continues to grow with the addition of the abovementioned Restructuring/Insolvency category, recognising law firms and lawyers based in Indonesia handling work in this area.