Indonesia’s rising IPO tide

The stock market in Indonesia is set for another busy year, with 30 or more companies having already announced plans to undertake an initial public offering (IPO) despite looming elections. The wave of new listings, along with new requirements announced by regulators, is set to sustain improved liquidity and activity on the exchange.

The sectors represented by the companies going public are varied, with aviation, logistics, transport, entertainment, construction materials, mining, telecoms and shipping among the industries that will see listings this year.

National airline Garuda is looking to tap the Indonesia Stock Exchange (IDX) early in the second quarter. It plans to offer 3.2bn new shares, having already conducted a partial IPO in 2011. Two others going to the markets are cinema operator Blitzmegaplex, which is seeking around $40m to fund expansion, and PT Eka Sari Lorena Transport, aiming to raise up to $13.5m to add to its fleet of buses.

Mining giant Freeport Indonesia is another to have flagged intentions to conduct an IPO, having previously floated the proposal in 2012, though no firm date has been mentioned. The company has said it could release 20% of its shares, which would likely attract a good deal of interest, even with the recent decline in copper prices and general uncertainty over commodities.

Further down the track, smelting and metals processor PT Indosmelt announced in February that it would be conducting an IPO before the end of 2015 to raise $500m to fund the construction of a gold refinery. An increase in the company’s refining capacity is in part due to the government’s restrictions on exporting raw metals, which are intended to promote industrial development and strengthen the value-added chain.    

Confidence floating on market maturity

The fact that many firms are looking to list around the time of the April local elections or just before the July presidential vote, along with others intending to float after the polls, suggests that companies planning an IPO are not overly concerned about the outcome of the forthcoming ballots. There does not seem to be any hesitancy among managers of IPOs, who obviously are confident that investors will retain their appetite for share offerings in the lead up to the elections and beyond.

Investors will also be buoyed by the unexpectedly strong gains of the IDX, which, as of the start of April, was the second-best performer in Asia, with the Jakarta Stock Exchange Composite Index climbing 12.6% since the beginning of the year. Though the Indonesian economy had been identified as one of those susceptible to the fallout from the scaling back of the US bond buying programme, it seems to have shaken off any ill effects of the tapering by the US Federal Reserve, responding with an optimism that should encourage IPO managers.

This performance has cast doubts on Indonesia’s membership of the so-called Fragile Five, which put the country in the company of India, Brazil, Turkey and South Africa as being likely to take a tumble in 2014 as US tapering took hold and foreign capital exited their markets, resulting in falling growth and weaker share prices.

Local investment banking and brokerage firm Mandiri Sekuritas, a unit of Bank Mandiri, has forecast that the economy will expand by 6% this year, in line with the expectations of the finance minister, Chatib Basri, with growth to be underpinned by solid domestic consumption, investment and improved export prospects. Mandiri has also predicted that if GDP does increase at the rate it has tipped, the IDX will close out 2014 at a record 5500 points, well above the 4700 points of late March. 

New listing requirements to lift liquidity

The IDX has also moved to encourage the public to buy into IPOs, issuing new regulations at the beginning of the year that mandate higher minimum levels of shares that must be offered in any float. Under the new regulation, which came into force at the end of January, firms with less than $44m in equity will have to sell a minimum of 20% of their book value to the public in an IPO. Those with equity of between $44m and $176m will have to offer at least 15% of their paid up capital, while companies with equity of more than $176m must float at least 10%.

Formerly, a company conducting an IPO was required to ensure that the total number of shares owned by non-controlling shareholders after the float was at least 100,000,000 shares, or at least 35% of the paid up capital, whichever was lowest. There was also a change in requirements for companies already on the IDX’s boards, with companies currently listed being given until January 2016 to ensure that at least 7.5% of their total paid in capital is represented by free float or public shares, and that at least 500,000 shares are held by non-controlling and non-substantial shareholders.

The reforms are aimed at broadening the ownership base on the IDX by promoting greater public involvement in the market, thus increasing liquidity. With the forthcoming rush of new IPOs, investors will have a far greater range of options than ever before, and may be encouraged to buy into the market by the stronger economic outlook.

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