Market progress key to privatization
Market progress key to privatization
JAKARTA (JP): The performance of the domestic stock exchanges in attracting domestic investors will be a key factor in influencing the government's decision on the location of the initial public offerings (IPO) of state-owned companies.
Director General for State Companies at the Ministry of Finance Bacelius Ruru said here yesterday that the government would go ahead with its plan to privatize state companies.
"But whether the privatization will be conducted through the domestic or foreign stock exchanges will depend on the performance of the domestic markets," Ruru told a meeting organized by the Indonesian Securities Companies Association.
Ruru therefore called on domestic securities companies to increase their capacity, expand their domestic-investor base and become more active in the market.
The government has so far preferred the international stock exchanges for the IPOs of big state companies,apparently because of the limited capacity of the domestic stock exchanges.
Last year Indosat offered 35 percent of its outstanding shares but only 10 percent of these shares were allocated for the domestic markets. Another company, PT Tambang Timah, also sold two thirds of its offering abroad.
Chairman of the Capital Market Supervisory Agency (Bapepam) I Putu Gede Ary Suta agreed that the domestic securities companies should improve their professionalism and strengthen their capital to play a bigger role in the market.
"The market is created by brokers, not by issuers," Putu asserted.
Activities
He cited that out of the 197 securities companies licensed to trade on the Jakarta Stock Exchange, almost 38 do not make trading activities at all, or only do one transaction a day. And about 95 percent of trading activities on the exchange are dominated by the twenty largest brokerage firms.
"So you have to start from a position of strength. How can you underwrite a share issue of up to Rp 1 trillion (US$436.1 million) if you are backed up by only Rp 100 billion in capital?" Putu argued.
"We, at Bapepam, have decided not to license any new securities companies until next year. This is not to block newcomers, we just want to be selective and make sure no license is issued to the wrong person, who could threaten the market."
Putu advised securities firms to learn from the banking industry, and not only be proactive in finding new customers but also in striving for the best possible standard of service.
The reality is that most securities firms do not have client accounts, and that they often take part in underwriting for their own profit, not for their clients, the investors.
Putu shared Ruru's view that the government will enlarge the domestic portion of IPOs by state companies when the local exchanges have the capacity to absorb big issues.
"For that reason, domestic securities firms should be supported by strong capital and have a large investor base," he added. (08)