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2014 a tough year for Indonesian firms looking to IPOs

Publication Date : 15-01-2014

 

Companies planning to enter the Indonesia Stock Exchange (IDX) this year face a mix of challenges, particularly given nationwide elections that could impact on business, market observers say.

IDX director for listings Hoesen, said although market optimism had picked up, a full economic recovery was still a stretch, making the initial public offering (IPO) target for this year flat.

“Overall, the situation this year will not significantly differ from last year. Our target for IPOs this year will be 30, the same as last year,” Hoesen said, adding the IDX eventually closed in 2013 with 31 IPOs.

BNI Securities head of research, Norico Gaman, agreed that “this year would not be easy for companies planning IPOs”.

“Given the market condition, there’s a possibility that only 80 per cent of the target will be achieved this year,” he said.

Aside from the economic conditions, another factor that may affect people’s interest in purchasing shares in IPOs could be the trading regulations recently passed by the bourse.

In a bid to lure more investors, particularly retail ones, the IDX reduced one lot size to 100 units from 500 units. They have also narrowed down the price fraction to a scale of three from the previous five. The bourse made the move to encourage long term investments.

Norico said however, that the new rules were a turnoff for short-term retail traders.

“These traders are the ones tending to buy IPO shares as they can go back to selling these shares within a short period,” he said.

Universal Broker Indonesia analyst Satrio Utomo added retail traders’ interest in the market had waned as the new rules made it harder for them to turn a quick profit.

“Although the bourse passed the rule to encourage long-term investment, the problem is that roughly 75 per cent of investors are this sort of speculator,” he pointed out.

Observers added another key factor influencing IPOs this year would be the general election. Indonesia is scheduled to hold a legislative election on April 9, followed by a presidential election on July 9.

Satrio said since 1992, the index had been on the upside in the election runoff period, given that elections signaled “new hope” in national leadership.

“The index has risen by approximately 33 per cent from the beginning of the year to the voting day in the previous five general elections,” he said, adding IPOs held near the elections would benefit from this upswing.

However, Norico noted that if the elections went awry, companies would replan.

“IPOs will do well if elections go as planned but if they do not, companies will hold off their IPOs until conditions improve,” he said.

Hoesen further added that the bourse expected the majority of listings to pass in the first half of the year as companies generally utilized their December financial reports.

“Last year, approximately 23 companies used their December reports, besides March and June,” he said.

Meanwhile, IDX president director, Ito Warsito, said that companies seeking listing in 2014 included those in the banking and insurance sector.

“Two banks are already scheduled for IPOs between [January] 15 and 16, namely Bank Panin Syariah and Bank Ina Perdana,” he said.

Yet, Norico pointed out that companies in sectors sensitive to exchange rates, including banks, property and automotive, would appeal less to investors.

“Any rise in interest rates would pose as a risk for those in these sectors,” he said, adding that companies linked to domestic consumption would attract investors instead.

 

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