Govt advised to float ADRs rather than shares overseas

JAKARTA (JP): Securities analysts and capital market players have suggested that the government float depository receipts of state companies rather than their equity stocks in its overseas listing program.

"Using American depository receipts (ADRs) will minimize legal problems which often arise in listing a company in the United States," Tito Sulistio, the president of PT Penta Sena Securities.

An ADR is a negotiable certificate issued by a U.S. bank for shares issued by a foreign corporation. The depository receipts, which are held in a custodial account either at the issuing bank or with an agent, are registered with the U.S. Securities and Exchange Commission and are traded on local stock exchanges. The receipts essentially give the holder the same benefits as shareholders while avoiding the complicated procedures that are necessary for a foreign company to issue stock in the U.S..

Securities analysts say that, besides the less complicated procedures, the listing of ADRs will also benefit local investors and stock exchanges -- as long as the company listed stock on the JSX at the same time. The government hopes that this will give them the best of both worlds, allowing access to the American capital markets, while pumping up the volume of the JSX.

"Most of developing countries use this instrument in tapping investment funds in the U.S. capital market," said Tito, also a member of the Supervisory Board of the Jakarta Stock Exchange (JSX).

The government plans to float the shares of at least 10 of its corporations overseas under its privatization program and PT Indosat, the international telecommunication company, is now being groomed to be the first company to go this route.

The government has yet to decide where Indosat will be listed but an informed source said that it will be listed on the New York Stock Exchange.

Voting rights

Tito said another benefit in listing ADRs is that the government can impose certain arrangements to limit voting rights of the depository receipt holders. These limitations on voting rights will prevent the control of the company from falling into the hands of foreign investors.

However, the government's plan to float state corporations' shares on overseas stock markets has been widely criticized by some local market players, who want the companies stock to be sold exclusively on the JSX.

PT Semen Gresik is the only state-owned company listed on the local market at present. With the listing of larger state corporations such as PT Indosat, PT Telkom, the domestic telecommunication service, subsidiaries of PT PLN electricity corporation and the national airline Garuda Indonesia, experts feel that JSX has the potential to be the largest stock market in Southeast Asia. (hen)