Bapepam needs more time on insider trading probe

Dadan Wijaksana, The Jakarta Post, Jakarta

The Capital Market Supervisory Agency (Bapepam) said on Tuesday it was unable yet to prove the alleged involvement of U.S. financial firm Merrill Lynch in insider trading during the sale of government shares in state-owned telecommunications firm PT Indosat in May.

Bapepam Chairman Herwidayatmo said that the capital market watchdog would need more time to carry out further investigations to determine whether the giant financial firm had committed the illegal practice.

"The investigation on possible insider trading, including Merrill Lynch, will be continued and if proven there's an insider trading element, it will be taken to court," Herwidayatmo was quoted by detik.com as saying.

Nevertheless, Bapepam has sanctioned four officials of small- time securities firm PT Nusantara Capital for selling Indosat's rights issue plan to investors at a time when the government was trying to sell its shares in the international call operator. The rights issue offer had scared investors who feared that their share ownership in Indosat would be diluted, leading to a massive sell-off of Indosat shares. This has been seen as one reason for the poor result in the Indosat divestment.

The penalties imposed on Nusantara officials range from Rp 50 million (around US$5,800) to Rp 100 million in fines. The officials were supposed to help sell the government shares in Indosat, not marketing the rights issue plan.

If they fail to pay the fines within 60 days, the four will be barred from making transactions on the Jakarta Stock Exchange for between one year and two years.

Bapepam started the investigation on May 23 following accusations from State Minister of State Enterprises Laksamana Sukardi that Merrill Lynch had taken part in the massive Indosat share sell-off.

Laksamana accused the company of having a conflict of interest as Merrill Lynch was also Indosat's financial advisor for the planned rights issue, expected to take place later. Laksamana accused Merrill Lynch of carrying out insider trading.

The sell-off by Merrill Lynch, which took place prior to the government's plan to divest an 11.32 percent stake in Indosat via a private placement, helped drive the share price of Indosat down by nearly 5 percent.

The Jakarta Stock Exchange then suspended over-the-counter trading in the shares, pending clarification from the government on the rights issue plan.

Data from Bloomberg showed that Merrill Lynch was among big sellers of Indosat shares at the time, with 4.14 million shares sold.

This was followed by ABN Amro Asia Securities, with 1.30 million shares, JP Morgan Securities (1.22 million), Vickers Ballas (753,000), Kim Eng Securities (523,000).

Merrill Lynch, which denied any wrongdoing, was not involved in the private placement, which was jointly carried out by Credit Suisse First Boston and state-owned Danareksa Securities.

All this led to disappointment as the government could only sell an 8.1 percent stake in Indosat at a price of Rp 12,000 per share, lower than the price level of Rp 12,600 before the trading suspension.

The government only managed to raise some Rp 1 trillion in proceeds.

That was the first sale under the government 2002 privatization program, the proceeds of which will be partly used to help plug this year's state budget deficit.

The state budget has set a target of raising Rp 6.5 trillion from privatization program this year.

The government plans to sell a 45 percent stake in Indosat this year as part of the privatization program.

The sale of the 83.5 million shares reduced the government's holding in Indosat from 65 percent to 56.9 percent.