Indosat leads the way
Indosat leads the way
Many people might have laughed at State Minister for Research
and Development B.J. Habibie's remarks in early May, 1993, that
50 Indonesian state companies would be offered to the investing
public through the domestic and international stock exchanges.
After all, it is sometimes difficult to follow the way of
thinking of Habibie, who is perhaps the country's most notable
futurologist and visionary.
Such a cynical reaction was caused not by any sense of
opposition to that idea itself but more by its seeming
impossibility at least within the foreseeable future. First of
all, even the domestic investing public does not consider most
state companies investment-grade corporations.
President Soeharto himself took a cautionary stance when he
instructed late in May, 1993, that the finance minister see to it
that state companies fully met all the listing requirements
before any public offerings were made on the international
exchanges.
But thorough preparations, combined with the careful selection
of the right state company to be floated and of the lead
underwriter, prove that international privatization is not
impossible at all. In fact, the reaction to the initial public
offering by PT Indosat on the New York stock exchange in the
middle of this month proves that such a move can be highly
successful.
The great success of Indosat's IPO in New York is quite
significant in many respects. The waters have been tested.
Indosat's issue, as the first step in the international
privatization of state companies, not only is raising the overall
investment profile of Indonesia, whose own capital market is
still in the early stages of development, but also is paving the
way for similar listings by other top-notch state enterprises.
The selection of Indosat as the first state company to be
floated overseas is quite apt indeed. A former unit of American
International Telephone & Telegraph, which was acquired by the
government in 1980, Indosat has from the outset established an
excellent management system. Even though Indosat was the monopoly
of Indonesia's telecommunication services up to this year, the
nature of its operations has always exposed it to stringent
requirements for international customer satisfaction.
But of most importance to investors who have bought Indosat's
shares is that the company operates in one of the fastest growing
industries in Indonesia. Even though its monopoly was broken this
year by a rival company -- PT Satelit Palapa Indonesia, which is
controlled by private investors -- the rapidly growing market
will still be large enough for the two companies to generate
handsome return on investments for shareholders. The export-led
growth strategy of Indonesia's economic development will generate
high increases in the demand for international phone calls, so
far the largest source of its incomes. The installation of more
than five million new phone lines within the next five years will
significantly expand the market.
Indosat, besides pioneering the going international move for
other state companies, has created a new alternative for the
government in raising foreign capital either for repaying its
foreign debts or for financing infrastructure development. It is
imperative, though, for the finance minister, as the nominee
shareholder for the government in all state companies, to
maintain the trust of international investors by ensuring that
the next listings will also be investment-grade enterprises.
We see another great benefit from the privatization. State
companies which go public either through the domestic or
international stock exchanges will have to meet full disclosure
requirements and will therefore become much more transparent.