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Editorial: Safeguarding the Garuda IPO
The House of Representatives plan to summon State-Owned Enterprises Minister Mustafa Abubakar to clarify what it sees as the low price set for the initial public offering (IPO) by Indonesian flag carrier Garuda Indonesia is pointless
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he House of Representatives plan to summon State-Owned Enterprises Minister Mustafa Abubakar to clarify what it sees as the low price set for the initial public offering (IPO) by Indonesian flag carrier Garuda Indonesia is pointless. Such a political move is both irrelevant and totally misguided.
First of all, what business do the legislators have assessing the prices set for the IPOs of state companies if the pricing process is transparent and conforms with stock market regulations.
We also doubt whether House members truly have the necessary technical competence possessed by the analysts at Minister Abubakar’s office or the three state-owned securities companies which underwrite the Garuda IPO.
Political noise over the pricing of the IPO, without taking into account the latest developments in the Indonesian stock market (IDX) and the global economic condition in general, would only damage the prospects for other state companies planning to launch their own IPOs.
It is rather unfortunate that the Garuda IPO, already delayed for almost two years, is being launched at a time when the IDX, buoyed by dramatic growth of more than 45 percent last year, has faced strong downward pressure during the first three weeks of this year, resulting in a 10 percent decline.
Moreover, the steady rise in international oil prices has raised greater concern over the profitability of the airline industry, further dampening investor interest in airline shares.
Hence, the scaling back of the size of the IPO and setting the IPO price at the bottom end of the target price range of Rp 750-Rp 1,100 (8 to 12 US cents) is understandable.
Subjecting the Garuda IPO to political harassment could scare foreign investors away from buying the shares.
Most analysts share the view that the Rp 750 price set for the IPO is appropriate. Selling Garuda at the top of its targeted price range of Rp 1,100 would make the shares way more expensive than many of its competitors in the region, including Singapore Airlines Ltd., AirAsia Bhd. and Malaysian Airline System Bhd.
Garuda has done remarkably well over the past five years, recording significant improvements in service quality, safety and financial ratios due to bolstered earnings and reduced debt.
The government should therefore safeguard the ease of the Garuda IPO to encourage other state companies to raise funds through the IDX, thereby subjecting them to tougher disclosure requirements.
