Govt mulls foreign cap for state-owned company IPOs

The government must control share allotments during state enterprise IPOs to ensure that foreign investors do not gain majority private ownership of the firms, according to a minister.

A mechanism was needed to change negative public perceptions of current government privatization policies, State-Owned Enterprises Minsiter Dahlan Iskan said on Monday.

“People continue to think that privatization means selling our companies to foreign entities, as happened with Indosat and Telkomsel. Today’s privatization policy is far different, as we privatize state-owned companies through the capital market. We will never again directly sell our companies to foreign entities,” Dahlan said.

“In the future, we must ensure that most of the shares offered during the IPOs of state-owned enterprises are absorbed by domestic investors,” he added.

The government’s previous privatization policy has been criticized, particularly when Indonesia was recovering from the 1997/1998 Asian Financial Crisis.

In 2002, the government sold a 41.94 percent stake in telecommunications company PT Indosat to Singapore Technologies Telemedia Pte Ltd, which is owned by Temasek Holdings, an investment firm owned by the government of Singapore.

Criticism quickly surfaced, as Indosat was considered one of Indonesia’s most valuable assets.

Moreover, Temasek Holdings, through its subsidiary Singapore Telecommunication (Singtel), had previously purchased a 35-percent stake in Indonesia’s largest mobile-telecommunication company PT Telkomsel.

Noor Rachman, the transactions bureau chief at the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK), said that giving preference to domestic or foreign investors depended on individual companies.

“It’s up to them and their underwriters. A specific regulation on an allotment to domestic investors as compared to foreign investors will also depend on policies of related ministries, such as the Telecommunications and Information Ministry for telecommunications companies,” Noor told The Jakarta Post over the telephone.

“Bapepam-LK has no specific rules for allotments, except for Regulation IX.A.7,” Noor said.

The regulation Noor cited covers the responsibilities of allotment managers and IPO underwriters to ensure, among other things, that order forms record the identity of domestic and foreign share purchasers. Managers were also given authority under the rule to fix percentages for allotments.

Noor said that foreign corporate investment in Indonesia was currently regulated by the List of Negative Investments (DNI).

The DNI forbids foreign companies from holding full ownership of strategic companies, such as those in the pharmaceutical, defense, and tourism sectors, as well as of alcohol and beverage industry firms.

The State-Owned Enterprises Ministry is expecting to float several state-owned companies on the IDX in the coming months, including PT Semen Baturaja.

State-owned pawnshop Pegadaian and plantation company PT PN VII are also planning to enter the bourse. However, the ministry said that Pegadaian’s planned IPO was reconsidered on concerns over the social role of the firm if it was to be taken over by profit-oriented companies.

Meanwhile, the IPO of PT PN VII must wait for the establishment of a plantation holding company in March that will be led by PT PN III and consolidate 14 plantation companies.

Dahlan said that PT PN VII’s IPO would also be considered. “We will see how strong the plantation holding is. If it’s already strong and be able to provide funds for the company, PT PN VII doesn’t have to raise funds from an IPO,” Dahlan said.