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IDX explores ways to lure more SOE units for IPO
The Indonesian Stock Exchange (IDX) is struggling to encourage companies to go public, with the low number of initial public offerings (IPO) in the last two years blamed on a relatively complicated listing process
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he Indonesian Stock Exchange (IDX) is struggling to encourage companies to go public, with the low number of initial public offerings (IPO) in the last two years blamed on a relatively complicated listing process.
The IDX saw only 16 companies go public in 2016, far below the 35 new issuers targeted by the bourse. In 2015, only 15 firms held IPOs, the lowest figure since 2009, when 13 new companies listed shares on the bourse.
The IDX and the Financial Services Authority (OJK), which supervises the stock market, are working on several measures from the relaxation of regulations to an information campaign to boost the number of IPOs in 2017. IDX president director Tito Sulistio has visited several ministers to discuss the matter.
“We talked about [state-owned enterprises (SOE)] privatization,” Tito said after a meeting with Coordinating Maritime Affairs Minister Luhut Pandjaitan recently.
Only days before, he had paid a visit to Finance Minister Sri Mulyani Indrawati’s office to discuss SOEs and IPO procedures. According to him, 14 subsidiaries of SOEs have expressed interest in holding IPOs this year.
A possible amendment to the SOE Law is also reportedly being discussed. Tito recommended an amendment to the law to ease the IPO process for SOEs, which currently involves 25 steps. He said he expected to see much simpler procedures to encourage state-owned firms to go public.
“I also mentioned 52 companies to Bu Ani [Sri Mulyani] and asked the government to push them to list [their shares] here,” Tito stated, adding that the 52 firms were operating in Indonesia but listed on foreign stock exchanges, such as those in Singapore, Kuala Lumpur, Sydney and New York.
Those firms, if combined, have potential IPO proceeds of Rp 300 trillion (US$22.5 billion) to Rp 400 trillion, according to him.
Aside from that, three companies — two mining firms and one property developer — had expressed their willingness to list their shares on the IDX, Tito stated.
The bourse is in need of listing more companies as, according to its latest projection, around Rp 212 trillion worth of funds from institutional investors will flow into the market this year. That may lead to a stock bubble if the supply of blue chip stocks remains low.
Consulting firm PricewaterhouseCoopers (PwC) partner Mirza Diran said while it may take just a few months for companies to list on the bourse, they needed years to undergo all the required procedures in Indonesia.
Key challenges of the IPO process included business planning, time-consuming processes for key executives, understanding financial record issues and tailoring the company’s transaction structure. “Miscalculating the time and complexity of the process is a common pitfall,” he said.
Taxation is also an important aspect to consider for companies looking to list shares. “The right structure will save tax from both unnecessary restructuring and/or future profit repatriation [taxation problems],” PwC partner Ali Widodo said.
Going public in Indonesia depended very much on the readiness of managers, Deutsche Bank head of Southeast Asian equity capital markets Edward Lee told The Jakarta Post.
In addition to the long and complicated process, another challenge was to choose the right moment for an IPO by taking into consideration the macroeconomic situation and global and local capital markets, Waskita Beton Precast business development and human resources director Anton Nugroho said recently.
“We also see a lack of incentives for [companies to hold] IPOs, with only a 5 percent cut in income tax,” he said.
