The Jakarta Post
Apparently buoyed by the upgrading of Indonesia’s sovereign risks to investment grade by the Standard & Poor’s Global Rating service in May, President Joko “Jokowi” Widodo last week called on companies that make a significant portion of their earnings in the country to sell their shares through the Indonesia Stock Exchange (IDX).
Jokowi rhetorically asked during a visit to the stock exchange on Tuesday why many big companies that made profits in the mining, plantation and property sectors in the country listed their shares in Singapore, Hong Kong or New York, instead of at the IDX.
Data at the IDX showed that 52 big companies operating in the aforementioned sectors that had a combined market capitalization of about US$32 billion chose to list their shares in the three cities Jokowi mentioned, instead of in Jakarta, but the primary reason can easily be discerned from the key market indicators.
Although Indonesia has Southeast Asia’s largest economy, the IDX has remained relatively small, shallow and less liquid compared to bourses in other major economies in the region. The IDX had only about 550 listings with total market capitalization of $480 billion, compared to 755 listings in Singapore with $717 billion, 900 in Kuala Lumpur with $410 billion and 525 in Bangkok with $442 billion.
Jokowi’s promise to directly talk to each of the 52 companies to persuade them to have their shares listed in the IDX could be a very positive signal from the national leadership, but that would be far from sufficient to convince them to have their shares traded in the IDX.
The key factors to wooing more companies to the IDX is the capacity, liquidity and credibility of the exchange. The Financial Services Authority as the capital market regulator needs to work harder to strengthen the credibility of the exchange by preventing insider trading and other unfair market practices.
The regulator should improve the mechanism of investor-protection by casting a broad enforcement net to detect and prevent accounting and financial fraud and to ensure that markets are fair, efficient and transparent.
In this context, the manner in which the South Jakarta District Court would settle the current dispute between investment bank Goldman Sachs International and local businessman Benny Tjokrosaputro over the ownership of 425 million shares of the publicly listed PT Hanson International property developer worth around $22 million could affect the credibility and integrity of the exchange.
Goldman claimed to have legally bought the shares through the negotiated board of the IDX in 2015 from American hedge fund Platinum Partners without being aware that those shares were tied up in a repurchase agreement between the businessman and Platinum in return for funding. This raised questions about the standard of transparency and disclosure at the IDX.
Other big questions then are: How could such share deals have been closed without the knowledge of the IDX management, why was such a big share repo agreement not registered with the IDX and how could the detective bureau of the National Police have been so quick to freeze the shares at the custodian bank while the IDX management and the Financial Services Authority simply sat idly by?