Indonesia’s 2020 IPO schedule dominated by state-owned companies
2020 IPO planned for Softex and cold chain operator Diamond
In Indonesia, the capital market is at a critical crossroads. On the one side, several businesses are queuing up to enter the stock markets against a background of stable macroeconomic fundamentals. On the other hand, some are following a’ wait-and-see’ approach before taking the plunge.
The government is expecting 5.3 per cent higher economic development in 2020 relative to 2019. The Indonesian economy grew 5.04 per cent during the first nine months of 2019, weaker than the government’s goal of 5.2 per cent for the year.
Experts say a slew of IPOs from state-owned companies are expected to be seen on the capital market this year. Wijaya Karya Realty and Wijaya Karya Bitumen, subsidiaries of state-controlled construction firm Wijaya Karya, are among those aiming to enter the bourse. Elsewhere, Softex Indonesia, the country’s largest manufacturer of sanitary napkins, is also looking to raise around $500 million via an IPO.
Indonesian cold chain logistics company Diamond Group is also expected to be on the list. DealStreetAsia earlier reported that Singapore’s state-owned investment firm Temasek Holdings was near to raising capital.
Besides these businesses, many out of the entrepreneurial community of the archipelago are also expected to make their capital market debut. Pigijo, a travel planner and marketplace aggregating local experiences, guides, car rentals and homestays, launched an IPO to raise 12 billion rupiahs ($0.86 million), becoming the first startup to be listed on the Acceleration Board of Indonesia Stock Exchange.
Experts estimate that two to three companies will be placed on this year’s latest SME-focused board, even after the stock exchange missed the goal for listing in 2019. This listed as many as 54 firms last year, down from 57 in 2018.
Mid-sized and smaller companies dominated the listings in 2019, each raising fewer than 500 billion rupiahs. Of the 54 newly listed firms, just six businesses— earned more than 500 billion rupiahs.
In the future, it is anticipated that Indonesian unicorns— startups worth at least $1 billion— would take a cautious approach, while the listing is usually an important move for such firms.
Andre Soelistyo, co-chairman of the ride-hailing firm Gojek, said the business will probably be pursuing an IPO on the Indonesia Stock Exchange (IDX) but could go for a dual listing in the international market. A related aim was shared by e-commerce company Tokopedia.
However, in more conventional markets, low-cost air carrier Lion Air has once again postponed its IPO, suffering from the aftershock of Indonesian history’s second worst aviation disaster after one of its Boeing 737 aircraft plunged into the Java Sea last October, killing 189 people onboard. The airline officially planned to collect $1 billion in an IPO in 2020.
IDX chairman Inarno Djajadi told reporters that in 2020 the stock exchange set a target of 78 companies raising funds through the capital market (through processes such as IPOs and bond issue).
“We set conservative targets for 2020. This year[ 2019], we exceeded our target to have 76 companies fundraise through the capital market from the first 75 companies,” Djajadi said at a news conference recently held.
Total capital-market financing by Indonesian firms (including bonds) between January and December 2019 exceeded 166.25 trillion rupiahs ($12 billion), according to data available from the financial services regulator (locally known as OJK) in the region. Funds raised by IPOs alone during last year amounted to 14.7 trillion rupiahs.
Proposed Omnibus Act could improve listing operation The Jakarta Composite Index, the country’s main stock index, grew 1.7 per cent last year, overcoming political uncertainty in an election year, a sluggish economy and the global turmoil created by the U.S.-China trade dispute.
In addition to the expected economic growth, banks and analysts are currently betting heavily on the much-anticipated legislation that aims to ease business regulations in the region.
We expect the market to receive a boost from the so-called Omnibus Act, which was first announced to the public by President Joko’ Jokowi’ Widodo in his reelection inauguration speech a few months ago.
When enacted, it would change thousands of separate pieces of legislation opponents have blamed for the difficulties of small and medium-sized businesses, as well as the country’s publicly listed firms, and dissuade investment in Indonesia.
Michael Tjoajadi, president of Schroder Investment Management Indonesia, said the legislation would become one of the crucial catalysts which will raise earnings per share of companies listed on the main board of the stock exchange.
“With the tax incentive, companies will be efficient in using their capital,” Tjoajadi told the audience at the IDX’s 2020 Business Outlook Conference in December.
The government also proposed tax changes as part of the Omnibus Act that includes loosening taxation for Indonesians and expatriates; eliminating dividend tax and reducing income tax, and introducing a new digital economy levy.
If this year’s House of Representatives approves the Omnibus bill, corporations will look forward to a lowered corporate income tax from the existing 25% to 20% by 2023.
Over five years, publicly listed businesses will receive an extra 3 per cent tax cut, a move that could increase listings and improve stock market activity.
International volatility hangs on business outlook 2020 Citigroup Sekuritas Indonesia management, and analysis manager Ferry Wong expects international disputes to subside in 2020, as the U.S. braces for its November presidential election. That could ease the pressure on Indonesia, whose two most significant trading partners are the United States and China.
He predicts that the relaxing of trade barriers will push the profits of firms up by “about 10 per cent next year,” a significant improvement from this year’s earnings growth rate of less than 5%.
Separately, Binaartha Sekuritas brokerage analyst Muhammad Nafan Aji told DealStreetAsia that post-election political stability in Indonesia would help boost the country’s economy over the coming months.
In polls, in April 2019 President Widodo was re-elected for a second term. His opponent, Prabowo Subianto, entered the cabinet as minister of defence, a development that political analysts believe could help bring peace to the region. “We see that there is a political opposition party who joined Jokowi’s cabinet and is now supporting the government. And we know that political stability means economic stability,” Aji said.
Aji predicts the critical stock index to hit 7,015 this year, whereas Wong’s Citigroup has expected it to be at 7,050.
But Bima Yudhistira, an economist at the Institute for Economics and Finance Growth, expects development to stay slow.
In a telephone interview, Yudhistira told DealStreetAsia that the 2020 forecast was still weighed down by trade-war uncertainty, the U.S. referendum and its results, Hong Kong’s political instability, apprehension of deflation and commodity price fluctuations.
“The impact of Omnibus Law will only bring a short-term sentiment in the market, especially related to the reduction of corporate income tax, which will be slated to complete by 2021. Overall, people will still take a wait-and-see stance and see how the Omnibus Law is implemented,” he said.
He said that 2020, in the sense of the US, was a year in which all attention would be on geopolitical tensions. The resignation of President Donald Trump, and the much-awaited U.S. presidency. The results of both will affect the mood of global investors, as will the outcome of trade negotiations between the US and China.
“The effect on Indonesia is that more and more buyers are investing in safe assets, forex (dollars) and gold,” Yudhistira said. “We will be more vigilant[ when betting] on stocks. “Next year, hopefully, the government can focus on reforming comprehensive regulations through the Omnibus Law after the political tension eases.” Sectors predicted to be involved include telecommunications, as the government has just finished the Palapa Ring satellite network and updated the system to 5G.
“Other sectors would be education, as it caters to Indonesia’s[ growing middle-class] who need better quality education facilities,” Yudhistira said. “In the digital sector, the trend will be insurtech, agritech and some of the recently-listed e-commerce companies.”