Mistakes – but no price fixing – in Krakatau IPO: Auditors

Independent auditors found several irregularities in state-run steel company Krakatau Steel’s recent initial public offering (IPO), according to the nation’s market watchdogs.

Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) chairman Fuad Rahmany said on Monday that the auditors found that a number of affiliated parties had bought the company’s shares during the IPO.

But , he said, there was no proof that the government intentionally undervalued the shares at the request of certain parties, as many people accused.

About Rp 2.68 trillion (US$297 million) in shares — 1 percent of the IPO’s value — were bought by affiliated parties such as appointed sales agents, he said.

“It’s been proven. There will be administrative sanctions for the implicated parties,” Fuad told a press briefing at Bapepam-LK offices in Jakarta on Monday.

More irregularities occurred due to double orders, Fuad added.

According to Bapepam-LK’s regulations, investors may not place double orders during an IPO, and firms affiliated with the parties involved in an IPO, such as sales agents, cannot buy shares.

“Five affiliated securities firms were listed as buyers of the shares, with a total orders of 980,000 shares, or 0.03 percent of the total proceeds,” Fuad said.

The initials of the implicated firms were MPI, SS, UKHS, BBS and MAS, according to Fuad.

The securities firms were five of 49 sales agents involved in Krakatau’s IPO.

Acting as underwriters in the IPO were state-owned securities firms Danareksa Sekuritas, Mandiri Sekuritas and Bahana Securities.

“Double orders were placed by 68 parties, with a total orders reaching 31.7 million shares, or about 1 percent of the IPO’s size,” Fuad said.

“Both institutional and individual investors were implicated, but most of the double orders were made by individuals,” Fuad added.

The controversy began at the end of October when the State-Owned Enterprises Ministry set the initial price of the company’s shares at Rp 850, which many analysts said was undervalued.

The ministry originally proposed a share price range between Rp 800 and Rp 1,150 before fixing the IPO price at Rp 850.

The pricing drew controversy, with analysts and politicians accusing the ministry of intentionally setting a low price due to pressure from politically connected businessmen who wanted to use the company’s shares to generate funds either for personal or political interests.

State-Owned Enterprises Minister Mustafa Abubakar previously denied the allegations.

According to the report, 16,249 individuals (26.7 percent) and 344 institutions (73.3 percent) were allotted the IPO’s 3.15 billion shares.

Foreign investors were allotted 34.92 percent and Indonesian investors 73.3 percent of Krakatau’s IPO, Fuad said.