In recent years authorities at the Indonesian Stock Exchange (IDX) and government officials have made a concerted effort to attract new listings to the country’s bourse. With 529 total listed companies as of the first half of 2016, the IDX is among the smallest exchanges in the region by number of market participants, despite Indonesia’s status as the largest economy in South-east Asia. In 2015 just 16 firms carried out initial public offerings (IPOs) on the IDX, down from 19 in 2014 and 30 in 2013.
In response to this declining figure, the exchange, in conjunction with the Financial Services Authority (OJK), has instituted a handful of new awareness-raising programmes and incentives in order to encourage private companies to consider going public. These efforts are in line with the bourse’s five-year target of becoming the largest exchange among ASEAN member states. “There is huge potential here in terms of new listings,” Umi Kulsum, the head of listing development at IDX, told OBG. “We are currently working to streamline the process of going public so as to make it a more attractive means of raising money in the future.”
Hurdles To Growth
Both the IDX and companies looking to list on the bourse currently face a variety of challenges. Global economic uncertainty – a result of tightening monetary policy in the US, the ongoing economic slowdown in China, the “Brexit” vote in the UK, political tensions in the South China Sea, the Middle East and Europe, and the low price of oil – has contributed to considerable volatility on stock exchanges around the world in recent years. The IDX has performed well during this period, with the Jakarta Composite Index (JCI) – a modified capitalisation-weighted index of all stocks listed on the regular board that serves as a market benchmark – up 11.8% on the year to midJuly 2016. Nonetheless, the small number of listed firms as compared to other ASEAN markets and the relatively underdeveloped investor base are considered to be key challenges to future growth.
The country’s rigid regulatory framework – and particularly the IDX’s high listing capital requirement – is also widely considered to be a significant obstacle to new listing activity. “We recently carried out a nation-wide survey of companies in Indonesia,” Saptono Adi Junarso, the IDX’s head of privatisation, start-up, small and medium-sized enterprises (SMEs) and foreign listing, told OBG. “We discovered that more than 90% of corporates are SMEs. Getting these firms in particular onto the IDX is a major challenge.”
Despite these pressing issues, OJK, the IDX and the local financial industry alike are broadly optimistic about the exchange’s development plans. The JCI’s first-half 2016 recovery, following on from a double-digit decline over the course of 2015, indicates improving market sentiment in Indonesia, which bodes well for investors and listed companies alike. In this climate the IDX’s target of 35 IPOs over the course of 2016 – a substantial increase from a target of 22 new listings for 2015 – is widely considered to be achievable.
That said, in the first half of 2016 just eight companies carried out new share listings, which represents a slower pace of growth than the exchange was aiming for at the beginning of the year. Authorities at the bourse are in the midst of rolling out a number of new initiatives, many of which are aimed at boosting market activity, and particularly new listings. “We have big plans to accommodate new kinds of listings,” Kulsum told OBG. “SMEs, foreign players and state-owned firms at both the federal and municipal level are all good candidates for IPOs, and we intend to attract new listings from all of these groups in the coming years.”
Indonesia’s stock market was a relatively small-scale affair until the 1980s (see overview). In 1982 the government introduced reforms that made it easier for private firms to float shares, followed in 1987 by regulations that allowed for foreign investor participation on the market for the first time. By 1988 just 24 firms were listed on what was then known as the Jakarta Stock Exchange. A year later, in 1989, a new bourse, the Surabaya Stock Exchange, was launched, by government decree, in Indonesia’s Eastern region. By the time the two exchanges were merged to form the IDX in 2007, the market had around 380 listed companies in total, with overall capitalisation of $211.7bn and average daily turnover of $466m. The merger resulted in a considerable jump in interest in listing among Indonesia’s large private sector. Indeed, new capital raised from IPOs jumped to $1.98bn in 2007, up from $365m the previous year and just $239m in 2004, for instance. By way of comparison, in 2015 the IDX reported that around $1bn was raised via new listings.
In the years following the 2007-08 international economic downturn, the IDX saw a rising tide of new listings, with 23 in 2010 and 25 in 2011, respectively. This was followed by a decline in IPO activity in 2012-13, with tightening economic conditions and a drop in the value of the rupiah causing some firms to postpone or cancel outright new share floats. Since then the number and value of new listings on the IDX has remained low, particularly as compared to many of Indonesia’s peers in the region during the same period. Indeed, while $2bn in total cash was raised via IPOs in Indonesia in 2011, in 2012 this figure fell to just over $1bn, which is where it has hovered ever since, according to Bloomberg.
In an effort to rejuvenate the market, in recent years authorities at the bourse and at the regulator have introduced reforms to the nation’s capital markets regulatory framework, with an eye towards increasing the number of new listings. In 2015, for instance, OJK eased capital requirements for new listings at the IDX, allowing any company with controlling capital of just Rp5bn ($365,000) to carry out a new listing.
Additionally, in August 2015 the government acted on a presidential decree that cut listed firms’ corporate income tax requirement to 20%, down from 25% previously. These moves were both widely understood as efforts by the state and the bourse to encourage local firms to tap the IDX as a primary means of raising capital.
More recently, in June 2016 the IDX and OJK announced that they would collaborate on a new strategy, named “Go Public” which is set to involve the establishment of a series of IDX information centres across the country, and particularly in major urban areas. The centres are to be designed to promote awareness about the benefits of raising financing via IPO on the exchange. Additionally, they will eventually allow local firms to carry out new listings from their home markets. Currently any firm wishing to launch a new listing has to travel to Jakarta to obtain the required paperwork and transmit data to the bourse. The centres will serve as one-stop shops for these activities, thereby further reducing the cost and hassle of carrying out an IPO in Indonesia in the coming years.
Furthermore, as of mid-2016 the IDX and the regulator were in the process of establishing a new trading board specifically designed for small and medium-sized firms. According to OJK data, as of late 2015 SMEs accounted for around 60% of Indonesia’s GDP and employed some 97% of the country’s workforce. The creation of an SME-focused board would enable investors to trade these stocks outside the regular market, thereby allowing listed SMEs to avoid direct competition with larger corporates and avoid liquidity issues due to low demand. Furthermore, a separate SME board would allow the regulator to carefully monitor trading activity in order to maintain liquidity. “You want to ensure there is an incentive for investors and prospective listed SMEs, in order to avoid high costs and increase liquidity [of the SME stocks],” Tito Sulistio, the president director of the IDX, told the media in early 2016. As of August 2016 the board had yet to be formally established, though it was widely expected to launch before the end of 2016.
The largest IPO on the IDX in 2015 was a 262m-share issuance by the private hospital operator Mitra Keluarga Karyasehat, which raised Rp4.5trn ($328.5m). Other major listings on the exchange in 2015 include the private real estate development firms Puradelta Lestari and Mega Manunggal Property, each of which raised Rp1trn ($73m); the state-owned contractor PP Properti, which raised Rp907bn ($66.2m); the fisheries firm Dua Putra Utama Makmur, at Rp919bn ($67.1m); and the Kino Corporation, a major beverage producer, at Rp869bn ($63.4m).
In June 2016, meanwhile, the independent power producer Cikarang Listrindo successfully carried out a Rp2.4trn ($175.2m) IPO, in what was the largest listing in the first half of the year. The firm sold off around 20% of its share capital in an effort to support a series of capacity expansion projects. Other major listings that took place in the first half of 2016 include Bank Ganesha’s Rp553.4bn ($40.4m) IPO in May; the recreational park operator Graha Andrasentra Propertindo’s Rp322bn ($23.5m) listing in June; and the privately held broadcasting firm Mahaka Radio Integra’s Rp78.8bn ($5.7m) listing in February. A number of private firms and stateowned entities have either announced plans to launch an IPO in the near future or are in the early exploratory stages of planning a share sale. For instance, Freeport Indonesia, the local subsidiary of the US-based mining giant Freeport McMoRan, is required to divest 30% of its shares in total to Indonesian entities, which will likely require an IPO in the near future. Currently around 10% of the firm is held by the Indonesian government, while the remaining 90% is owned by the parent corporation.