Indonesia Companies Rush to List Before Upcoming Election Year
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Companies are rushing to go public this year in search of fresh funds despite volatility in the market and investors likely to maintain a tight grip on the purse strings ahead of Indonesia’s 2019 general election.
Thirty companies have listed on the Indonesia Stock Exchange (IDX) between Jan. 1 and July 12, raising a total Rp 11.5 trillion ($790 million). In contrast, 20 companies undertook initial public offerings in the same period last year, raising about Rp 3.8 trillion in fresh capital.
The bourse expects 16 more companies to list during the rest of this year, among them Garuda Food, MD Pictures, Arkadia Digital and Media Net Visi Media, better known as Net TV. That would bring the total for the year to a record 46.
Kiswoyo Adi Joe, an analyst at Narada Kapital Indonesia, said prospective companies are hurrying for early listings on the IDX this year rather than wait for next year because of the uncertainty associated with an election year.
“They seem to worry about the upcoming election year, which would be more difficult and uncertain. While the JCI [Jakarta Composite Index] is flashing green, these companies will rush to list on the IDX,” Kiswoyo said.
Most of the public listings so far this year were by small and medium firms, such as digital exchange platform NFC Indonesia, palm oil producer Mahkota Group and property firm Sinergi Megah Internusa.
Among them were subsidiaries of state-owned companies, such as insurance firm Asuransi Tugu Pratama Indonesia, shariah-compliant lender BRI Syariah and logistic firm Indonesia Kendaraan Terminal, which raised more than Rp 1 trillion.
“The bourse expects 16 more companies to list during the rest of this year, among them Garuda Food, MD Pictures, Arkadia Digital and Media Net Visi Media, better known as Net TV.”
These companies prefer to seek funding through IPOs because it is cheaper than borrowing from banks or issuing bonds and medium-term notes, said I Gede Nyoman Yetna Setia, newly appointed company valuation director at the IDX.
“Banks require guarantees and companies usually only qualify for loans of up to 30 percent of their guarantee value. At a certain point, when they need loans for big expansions, they do not have any guarantees left,” Nyoman said.
However, companies seeking to raise capital will find themselves in a volatile market.
The benchmark JCI has slipped more than 7 percent since the beginning of the year, with foreign investors dumping Rp 51 trillion in shares. The rupiah has meanwhile lost 6.9 percent of its value since the beginning of the year and currently trades at 14,487 against the US dollar.
“Whenever the US Federal Reserve raises interest rates, it affects our stock market and bonds. There are also other factors, including the current geopolitical situation, especially the heated trade war between the United States and China,” said Ari Pitojo, chief investment officer at asset management firm Eastspring Investments.
While the uncertainty will force some investors to adopt a wait-and-see approach, others will perceive the valuations of these companies as low and scoop up their stocks at bargain prices. This will shore up demand for the IPOs this year.
“Market volatility has little effect on any particular IPO because it is mostly about a company’s fundamentals,” said Nafan Aji, an analyst at Binaartha Sekuritas.
“But this year, the stock market is perceived as relatively cheap, so many want to hold IPOs.”
Questions & Answers
Q.What is the primary reason companies are rushing to list on the Indonesia Stock Exchange this year?
What is the primary reason companies are rushing to list on the Indonesia Stock Exchange this year?
Companies are hurrying to list now rather than next year due to uncertainty surrounding Indonesia's 2019 general election. They worry the election year will be more difficult and uncertain for listings.
Q.How do the listing figures for this year compare to the same period last year?
How do the listing figures for this year compare to the same period last year?
Thirty companies listed between January 1 and July 12 this year, raising Rp 11.5 trillion. In the same period last year, 20 companies undertook IPOs, raising Rp 3.8 trillion.
Q.Why do companies prefer initial public offerings over bank loans or bonds for funding?
Why do companies prefer initial public offerings over bank loans or bonds for funding?
IPO funding is cheaper than borrowing from banks or issuing bonds and notes. Banks require guarantees, and companies often exhaust their guarantee limits for large expansions.
Q.Despite the rush, what challenges do companies face when seeking capital through IPOs this year?
Despite the rush, what challenges do companies face when seeking capital through IPOs this year?
Companies are seeking capital in a volatile market, with the JCI benchmark slipping over 7% and the rupiah losing 6.9% of its value this year. Foreign investors have also dumped Rp 51 trillion in shares.