We assessed the economic potential of a primary and secondary capital market in Indonesia. Looking at the main industries and key players in those industries we proposed potential IPO target and suggested a multi-stage and hedged market entry.

1. E C O N O M I C E N V I R O N M E N T C A S E S T U D Y
IE Business School
Economic Environment I – Prof. Mark Esposito, PhD
C A S E T E A M - G R O U P C
Antonio Auricchio, Théo Tortorici, Julius Kühn, Eudore Pirmez, Radhika Goyal, Andrea Roa
I N D O N E S I A I N V E S T M E N T A N A L Y S I S

2. 1
Executive Summary
§ Ownership structure of JV in first
year: 60% LSE and 40% Indonesia
Stock Exchange
§ 4 year cascading divestment plan
for IDX if volume thresholds are met
§ Discount purchase agreement if
market non-responsive
§ Largest South East Asian economy
§ Investment grade credit rating
§ $859bln GDP with 4,9% real GDP
growth
§ 5th largest global labor force of
123,7mln
§ Build primary market for most
promising sub-sectors in agriculture,
infrastructure and mining/metal
processing
§ 12 potential IPO targets to later
develop a diversified multi-industrial
Indonesian index
§ Major sources of risk: corruption,
ineffective governance
§ Complexity of stock issuance and
clearing process
§ Risk mitigation strategy outlined
Proposal
IPO targets
Country Brief
Risk
Joint-Venture with IDX
Selected Industries
Key Facts
Sources and Mitigation
1

3. 2
Market Attractiveness Analysis
I
§ Among world’s 10
largest economies
§ Extensive market
size compared to
the reference region
(East Asia & Pacific)
§ Low import/export
% on GDP due to
insufficient
supporting
infrastructure
§ +$15bn agricultural
production by 2030
(7% yearly CAGR)
Market Size
§ Significant amount
of private savings
compared to EA&P
countries
§ Low national level
of debt to GDP
§ Personal bank debt
extremely low (20%
vs 80-120% in
EA&P)
§ Average credit
rating: 56/100
§ Efficiency-Driven
development:
more efficient
production and
processes
§ Local supplier
quality
§ Competitiveness
should rise in the
coming years
§ Innovation almost
entirely run by
government – little
R&D efforts by
companies)
§ Bribes, property
and intellectual
rights violation,
organized crime –
High level of
Corruption
§ Low investor
protection
§ Low effectiveness
of anti-monopoly
policies
§ High cost of doing
business for
inefficient
bureaucracy
(nation-regional-
municipal level)
§ High-potential
sector, strategic for
future
development
§ Railroads, airline,
mobile usage
among fast
growing
companies
§ Little local
competition,
centralized market
structure (Public
Conglomerates)
2
Indonesia GCI Report
II III IV VInfrastructure Macro
Environment
Business
Sophistication
Institutions

4. 0
50
100
150
2006 2014 2025
Transport Utilities Manufacturing Social Extraction Telecom
$72.3bn
budget for
2016
3
Indonesia‘s Infrastructure Sector3
Key Insights Outlook
Government support
Latest Important Facts
2016-2019 Top Infrastructure Projects
§ 17 contracts in 2016 for a total of $1.5bn
§ Tax amnesty program (2015)
§ Bureaucracy Deregulation (2005)
§ Constitutional Court opened industry to
private investments (2002)
§ National Integrated Coastal
Development
§ Water Supply System Semarang
§ Electricity Transmission Sumatra
§ West Java Port
§ East Railway
Infrastructure Spending by Sector ( in bn of $)
0
25
50
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Roads Rail Ports Airports
Transportation Infrastructure Investment ( in bn of $)
Source: Indonesia Infrastructure Summit 2017, PwC Publications, Oxford Economics, Indonesian Ministry of Finance Data, National Development Planning Agency, GCR 2016

5. 4
Indonesia‘s Agricultural Sector3
Key Insights Palm Oil Projections
Natural Rubber Market
Palm oil
Natural rubber
§ Indonesia second largest producer
§ China’s automotive OEMs largest
consumer
§ Global demand growth 3,9% with
4,8% from Asia Pacific region
§ Tires account for 65% global rubber
demand
0%
10%
20%
30%
40%
50%
0
10
20
30
40
50
60
1996 2000 2005 2010 2015 2020
Indonesia Malaysia % World Oil
Palm Oil Production in Million mT
§ Second most traded crop oil
§ Indonesia largest producer
§ Feedstock for biodiesel production
§ US trans fat ban and EU GMO ban
shift demand to soy and palm oil
§ Growing use in cosmetics products
4150
856
603
4014
519
3180
1085
420
900
250
958
842
Consumption Production
Source: Global and China Natural Rubber Report, PWC Palm Oil Report, World Bank Commodity Forecasts
In mT

6. 5
Indonesia‘s Mining Sector4
Key Insights Copper Consumption
Nickel Development
Copper ores, anodes and alloys
Nickel and tin
38,7%
30,7%
11,4%
9,8%
9,4%
Electronics
Construction
Transportation
Consumer
Machinery
Source: GFMS Copper Survey 2015, MGB, 2015 U.S. Geological Survey, CNBC Copper, 2016 Report on Global Tin Resources & Reserves, Glencore Nickel Market Development
In 2015
§ Indonesia second largest tin and
third largest nickel producer
§ 60% of Indonesian tin producer are
private companies
§ Significant tin deposits offshore
§ Nickel demand driven by battery and
stainless steel market
§ Second largest copper mine in
Grasberg, Indonesia
§ 33% increase in price until 2020
§ Electric mobility demand driver
§ Government policy promoting the
development of processing plants
1200
1400
1600
1800
2000
2200
2400
2600
2800
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100% North America
Europe
Asia Pacific
China
ROW*
Nickel Global**
In kT
*) Rest of World **) Gobal Nickel Consumption

7. Investor HighlightOverview
6
IPO Targets per Sector (Leading Companies)
Infrastructure
IV
V
NUSANTARA
Infrastructures
PT BUMI
Resources Tbk.
5
Infrastructure
Long List
Mining Long List
Agriculture
Long List
Mining
Agriculture
EAGLE HIGH
Plantations
Asia’s fastest growing coal company
World’s largest producer and exporter of
thermal coal
Total Revenues of $191m in 2016
Total Assets increased +100% in L2Y
Production capacity grew +51% in L2Y
Substantial land reserves
Harvesting and processing capability fulfill
international standards
Leading private company
Fields: Toll Roads, Ports, Energy, Water
and Telecom
Total Revenues of $618m (+19%) in 2016
EBITDA Margin increased to 57% of
Revenues
Share Price performed +2,5% in L3M
Total Revenues of $3.5bn in 2016
Gross Margin stood at 90% of Total
Revenues in 2016
35,000 employees

8. 7
Risk Assessment and Proposals
Our Recommendations
6
Overall risk
Medium Term Goal
For the Primary market
§ Simplify the Issuance Process
§ Implement a centralized system of clearing
and settlement to reduce costs and risks
§ Foster partnerships between US and
Indonesian credit-rating agencies
For Regulations and Enforcement
§ Review the regulatory framework
§ Decentralize some power to SRO*
§ Investigate loopholes in bankruptcy law.
For the Minimum Issue Standards
§ Reexamine BI regulation on minimum
standards
§ Coordinate regulatory initiatives between
Babepam and BI
For Corporate Disclosure
§ Tighten Accounting standards for mark-to-
markets financial assets
§ Improve training of auditors
§ Encourage investors and regulators to hold
auditors responsible for disclosure failure
§ Incentivize stocks exchange to be hard on
companies that refuse to provide
information
§ Encourage Rating agency to highlight
concerns publicly
§ Creation of a Joint-Venture between LSE and
IDX (Starting at 60/40)
§ Implementation of LSE Millennium IT system
§ Provision: 4y cascading plan to buy 10% if
volume quotas are met by IDX
§ Progressively opening the primary markets
to selected industrial sectors that comply with
international regulations (mining, agriculture
and infrastructure)
§ Discount purchase agreement if market non-
responsive
§ Aim for monopoly of the listing at LG
Top 6 issues in doing business in Indonesia

9. 8
Macroeconomic Drivers
A sleeping tiger that needs waking
Future Sources of Growth
§ Demographics: Fourth largest population, median age 27,9 years, 44% urban
population, 2,5% urbanization rate
§ Resources: Resource and labor abundance yet inadequate access to financing
§ Inequality: Corruption and bureaucracy worrisome
§ Volatility and scale: Fourth largest domestic consumer market, high policy instability
§ Enterprising dynamics: Solid business sophistication and potential to innovate,
increasing product and process quality (toward Innovation-driven development)
§ Capital access and active IPO markets will trigger FDI investment (currently at 9,6% of GDP)
§ Technology spillovers from FDI could increase productivity and stimulate private R&D
expenditure (currently at 0,08% of GDP)
§ Shifting focus of mining industries downwards the to greater value-add processing
industry will widen current $15,2bn trade surplus
§ Natural resource abundance for electronics and machinery are drivers of future growth
bargaining power bilateral trade agreement
Foreign direct investment and trade effects
Source: CIA Factbook, World Bank, 2016 Global Competitiveness Index
7