On July 27 the Indonesian government sold 25.8% of its stake in Bank Negara Indonesia (BNI), reducing its share to 73.3%. The biggest stock sale by value, entailed the sale of 3.95bn shares at Rp2050 a share and raised a total of $878m.
The sale was arranged by Bahana Securities and US-based JP Morgan. Half of the proceeds are earmarked for the state treasury, while the rest of the capital raised will be used to strengthen the bank’s capital structure. The BNI offer only raised the lower amount predicted by the government, which had set a targeted price range of Rp2050 to Rp2700 ($0.22 to $0.29).
The government had wanted to capitalise on these strong gains and in a bid to attract foreign investors, BNI management toured capitals such as Hong Kong and New York in July to publicise the sale.
“I think the buyer composition is 50:50 between local and foreign investors,” Sofyan Djalil, state minister for state enterprises, said at the close of the offering. “We had a good response from investors although there was some disturbance in the market.”
Foreign investor appetite for shares on the JSX has grown rapidly in the last year, with local traders witnessing to a significant rise in liquidity. With a country of over 220m inhabitants counting a mere 200,000 domestic shareholders, foreign investors play an important role in the capital markets.
Investors have complained of the lack of new share listings given the low number of initial public offerings. The BNI sale was welcome news for the primary market.
“There is a lot of liquidity out there,” Mari Pangestu, minister of trade, said. “We need to increase supply of good investment.”
To boost new listings on the JSX, the government is finalising details of a capital markets development package, which aims to provide more incentives for companies to go public.
In addition, once parliament gives its approval, there are plans to list a further 16 state-owned enterprises, including the toll road operator and developer PT Jasa Marga and two construction companies, PT Wijaya Karya and PT Adhi Karya this year.
Both initiatives aim to encourage greater depth in the JSX.
In the banking sector, the government has announced plans in July to sell more stakes in Bank Mandiri, the country’s largest bank, as well as in Bank Rakyat Indonesia (BRI), the fourth largest bank, in 2009. Indonesia’s government intends on privatising 15 public firms in 2008 and 11 in 2009.
Rather than selling state assets through strategic sales, which could leave the door open to collusion among bidders, Sofyan has opted for privatisation through the capital markets. This has been a hallmark of his tenure at the ministry since May 2007.
The state faces a number of challenges as it encourages more companies to list on the stock exchange, including the political considerations in any public offering of state shares.
“In a market that is growing, like the JSX this year, it is difficult for a minister to choose the time to list shares of a state-owned enterprise,” an industry insider told OBG. “As soon as the share price of the company rises, the minister stands accused of selling the shares at too low a price.”
Nonetheless the government’s road map for the development of the state sector involves the reduction in the number of state-owned enterprises from the current 139 to 69 by 2009 and 25 by 2015. This is expected to be achieved through the merger of existing institutions, the creation of holding companies and a number of privatisations.
The state holding companies will be created along the model of Temasek in Singapore and Khazanah in Malaysia. These act as state investors in other companies, bringing private sector commercial discipline into the operations of state enterprises.
“We expect state firms to act more like autonomous corporations in the future, without the need for a special ministry,” Sofyan said in July.
The introduction of free market principles to state enterprises is a positive sign of the ongoing streamlining of state activities. The ambitious privatisation programme only adds to this even though it has been moving in fits and starts since the Asian financial crisis in the late 1990s.
