Government prefers public privatization

Government prefers public privatization

JAKARTA (JP): Director General of State Enterprises Bacelius
Ruru said yesterday that the government preferred to privatize
state enterprises by offering their shares to the public.

"Privatization does not just mean the transfer of ownership to
the private sector, the jewel of privatization is going public,"
Ruru told a discussion on "The future of privatization and the
vision for the Indonesian capital market".

"The reason is that by selling shares through the capital
market, the government will be able to attain several goals
simultaneously," he said.

The goals included raising funds for the government to repay
expensive foreign loans and for the listed companies to finance
their expansion projects. The goals also included making the
companies more efficient and increasing the distribution of share
ownership and further developing the domestic capital market.

"For initial public offerings, Indonesia's privatization
program is probably the best in Asia, and among the best in the
world," President of Merrill Lynch Indonesia Mitchell Shrivers
said.

Shrivers disclosed that the public offering of four state-
owned companies -- PT Semen Gresik, PT Indosat, PT Tambang Timah
and PT Telekomunikasi Indonesia -- had raised about Rp 7.5
trillion (US$3.1 billion), of which Rp 3 trillion were received
by those companies and Rp 4.5 trillion by the government.

"And investors who have purchased the initial offerings have
also done well. All of the deals are above their offering
prices," he added.

Investors who bought Telkom's shares at the initial offering
last November had gained by approximately 60 percent by
yesterday.

The chairman of the Capital Market Supervisory Agency
(Bapepam), I Putu Gede Ary Suta, said the capital market would
also support the government's privatization program for the
benefit of both the government and the capital market.

Most analysts at the discussion said the Indonesian capital
market needed more listings of state-owned enterprises for many
reasons; especially to help the exchange expand the domestic
investor base and boost market liquidity.

Ruru said that although only four state companies had been
listed on the domestic stock exchanges, they currently accounted
for up to 27 percent of the Jakarta Stock Exchange's (JSX) total
market capitalization.

So far this month, the JSX's market capitalization has been
around Rp 179 trillion (US$76 billion).

Future challenge

Shrivers said that although privatization was intended to
boost the participation of domestic investors, foreign investors
would continue to play an important role in the market.

The recent privatization of Telkom doubled the number of
domestic investors to approximately 400,000.

It demonstrated the domestic market's ability to absorb up to
$1 billion in new shares. It also proved that privatization was
contributing to the development of the capital market, analysts
said.

Shrivers said that in the primary market domestic investors
had bought up to 1.2 billion of the 1.9 billion shares floated by
Telkom; only 700 million shares were subscribed to by foreign
investors. But by June, foreign investors held up to 1.3 billion
shares, or 68 percent of the shares listed.

"Undoubtedly, the shares of Telkom would be much lower in
price without foreign investors," he contended.

One of the future challenges in meeting the goals of
privatization, according to Shrivers, was how to educate the
public about the long term benefits of share ownership.

He said the rewards for developing the domestic investor base
in Indonesia were substantial to both the capital market and the
government because only 2 percent of Indonesia's population were
currently involved in the market.

Ruru did not say if the limited free float set by the
government for previous privatizations was due to the limited
ability of the market to absorb new shares.

According to Ruru, there were 166 state companies with assets
totaling Rp 312.8 trillion last year. Their sales turnovers
amounted to Rp 94.46 trillion and their earnings before tax,
excluding Pertamina's, amounted to Rp 9.3 trillion. (alo)