Bapepam defends price intervention in primary market

JAKARTA (JP): Chairman of the Capital Market Supervisory Agency (Bapepam) yesterday defended the agency's price intervention on the primary market.

"In emerging markets like Indonesia, price intervention is still needed. But it is a temporary measure," Bacelius Ruru told reporters.

The Bapepam chairman also dismissed fears that widening the ceiling of foreign equity holdings in portfolio investments from the 49 percent level could destabilize stock trading.

Speaking to reporters during the afternoon break of the PACAP Capital Market Conference, Ruru said domestic investors still need time to enter a "full market mechanism era."

"We are now in the process of educating our domestic investors and when they are mature enough, the free market mechanism will be enforced," he said.

Bapepam's policy of limiting share prices during the primary offering at a maximum of 13 times the price earnings ratio has been widely criticized by capital market experts at the conference.

Analysts said that if the price cap is maintained, the capital market will no longer be attractive for potential share issuers.

Ruru, however, argued that if share issuers are free to set the prices of their shares, it could hurt the investing public, especially local investors, who often buy shares without properly assessing the risk first.

No disturbance

"Our price intervention is not really disturbing the free market principle as it is only imposed during the primary market," he said. "When shares are listed and being traded on the trading floor, it is supply and demand which determines price fluctuations."

The Bapepam chairman also came out against the suggestion, saying that the increase in foreign equity holdings could harm stock trading.

"The massive withdrawal of foreign investors from the market is, of course, negative, but we should not be too afraid as long as we are able to maintain trading transparency and fair practice," Ruru said, adding that if the market is promising, foreign investors will automatically return again even after a massive pullout.

Finance Minister Mar'ie Muhammad said here on Thursday that the government is still "seriously" studying the possibility of adjusting the ceiling of the equity ownership imposed on foreign investors in the capital market to the government's new ruling on direct foreign investment.

The new investment ruling issued early last month allows foreign investors to have an equity holding of up to 95 percent in a joint venture with local partners. While the foreign ownership restriction on direct investments has been eased several times in the past to attract foreign investors, the restriction on foreign holdings in the capital market remains at 49 percent.

The Bapepam chairman said that founders of listed companies should not be afraid that allowing foreign buyers to buy more than 49 percent of listed shares will lead to a hostile takeover by foreigners.

"The chance of a hostile takeover is minimal as founders have the right not to sell their stocks in order to maintain their control in the company," Ruru said. (hen)