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)