IDX suspends trading, demands clarification over Bakrie units

Ika Krismantari , The Jakarta Post , Jakarta | Thu, 10/09/2008 10:31 AM | Headlines

Trading on the Indonesian Stock Exchange was suspended indefinitely on Wednesday as the market became "irrational", causing the main index to plummet more than 10 percent by mid-morning.

This was the first suspension since 2000, when a bomb exploded in the basement of the stock exchange building, killing 10 people.

Erry Firmansyah, the exchange's president director, said at a press conference the decision to suspend trading was taken after the regulatory authority saw the market moving "irrationally" with low transaction value.

"The market is being irrational, with the index dropping by more than 10 percent and transactions valued at less than Rp 1 trillion (US$104 million)," Erry said.

The Jakarta Composite Index fell 10.38 percent to 1,451.67 before trading was halted, with a total transactions valued at Rp 988 billion. Normal trading ranges from Rp 3 trillion to Rp 4 trillion daily.

BNI Securities analyst Alfatih said the main reason behind this week's phenomena, in addition to regional trends, was overreaction by local investors upon seeing their foreign counterparts selling off their holdings.

According to traders, Merril Lynch, Kim Eng, CLSA and JP Morgan were among biggest net sellers -- an action promptly followed by "panicking" local investors.

Erry said the suspension was aimed at calming the market and giving investors more time to think rationally.

Wednesday's drop was the second time in three days the market had fallen by more than 10 percent. On Monday, the market plunged 10.03 percent to close at 1,648.74.

This means the index has fallen by almost 50 percent since peaking on Jan. 9 at 2,830, making it one of the worst-performing indexes in the region.

In addition to panic amid a worldwide sell-off, another factor behind the Jakarta market's fall was rampant speculation about PT Bakrie & Brothers and its units.

Declining stock prices of Bakrie and its units, in particular PT Bumi Resources, were the main driver behind the index's 10.03 percent fall on Monday. With a further decline on Tuesday, the regulator suspended trading in the shares to seek clarification over "contradicting information" in the market about the companies.

The speculations revolve around concerns that Bakrie would be unable to pay its debts which reached about $1.43 billion due to the sharp drop in the business group's share prices.

At least seven financial companies, including JP Morgan Chase & Co. and ICICI Bank Ltd., lent Bakrie. All the loans are backed by the stock of affiliated companies, including Bumi, PT Energi Mega Persada and PT Bakrie Sumatera Plantations, Bakrie has said in filings.

After meeting with Bakrie executives on Wednesday, Erry said his office would need to clarify some more points about the default rumors.

"In the meeting, they told us the rumors were false and misleading, but we still need more clarification on some points," Erry said.

According to Bloomberg, quoting analysts, Bakrie and Brothers -- controlled by the family of welfare minister Aburizal Bakrie -- would adhere to creditor covenants.

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