Bapepam defends price intervention in primary market

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)