Internal frays may scare off foreign investors

Mounting pressure from several groups to cancel state-run Krakatau Steel’s planned initial public offering (IPO) might have been the reason for massive foreign sales of the steel giant’s shares on its market debut, top officials said Thursday.

State-Owned Minister Mustafa Abubakar said the recent frays over Krakatau’s IPO in the country might have caused inconveniences and scared off foreign investors.

“They might be scared because of the recent issues spread in the country that made them feel inconvenient,” Mustafa told reporters at the Investor Summit and Capital Market Expo 2010 at the Ritz-Carlton Pacific Place in Jakarta.

Indonesia Stock Exchange (IDX) president director Ito Warsito shared the minister’s view, saying that foreign investors invested their money for long-term purposes and therefore were scared of the recent internal chaos.

As reported earlier, foreign investors sold Krakatau shares worth about Rp 378.69 billion during the steel company’s trading debut on the local stock exchange on Wednesday. As a result, foreign investors holding in the largest steel company in the country slid to 5 percent from the previous 7 percent of its total outstanding shares.

The escalation of capital gain on Krakatau shares, according to Mustafa, might also have led foreign investors to sell their shares and take a profit.

Krakatau shares rose by nearly 50 percent on Wednesday despite the selling pressure from foreign investors. The shares extended their gain on Thursday, to close at Rp 1,340, almost 60 percent of its IPO price of Rp 850.

Several groups have strongly opposed the steel company’s IPO and urged the government to delay it to allow an independent party to review the fairness of the IPO process. The government fixed the share price at Rp 850, far lower than its book value.

The groups accused that the price had been fixed at such a low level to accommodate certain groups of investors. Bapepam-LK, as the capital market regulator, has vowed to continue probing the shares allotment in hopes of finding out the truth about whether or not the share prices were intentionally set low to benefit certain parties. (est)