Jakarta have revealed their wish list of market reforms that
could invigorate the country's equity capital markets, if
Morgan Stanley's legal counsel and executive director
Sok-Theng Cheng said market players believe the market could
benefit from having price stabilisation rules which allow
issuers to offer primary shares to satisfy over-allotment or
green shoe option.
The current regulatory regime does not permit a primary
green-shoe and enforces an 8 month lock-up period on
shareholders for shares issued less than six months before a
registration statement is submitted, which means that a
secondary green-shoe is also often not available.
"It would be good for authorities to look at the proposed 2009
draft rules that have been put on hold," she said. "Allowing
contractual freedom to provide for price stabilisation would be
very helpful to support the after market of an initial public
Strict limitations on termination of IPOs for unforeseen
market events are another unique constraint of the local
market, she said. Local regulations prescribe very limited
circumstances under which an IPO could be postponed or
terminated after the effectiveness date of the registration
statement, compared to international market practice where
termination rights are much broader. "This causes a huge risk
burden on local underwriters," she said.
Indonesia's technical advisor Jasmin Maranan agreed the rules
needed to be reconsidered. But she added that the country's IPO
prospectuses also needed to evolve to something more in line
with international standards.
prospectuses need to become more of a legal than a marketing
document, with lawyers tasked with their drafting as is done in
international markets. At present, the local underwriters
prepare the local prospectus and invites the company (or its
representatives), legal adviser and accountants to discussions
as part of the due diligence process," she said.
Tips for Indonesiaco international
For those Indonesian companies wishing to attract foreign investors in an IPO, Cheng advised that
the company in question need to have a good equity story and
provide for sufficient liquidity.
"In order for an Indonesian company to market an international
capital markets offering effectively, you need to have a
compelling story to present to investors," she said. "Companies
with good potential growth, and sectors with a low risk earning
profile will do well, for example, a company that taps the
growing middle class consumer base."
She said that domestic issuers should recognise the importance
of having reputable and experienced sponsors and management on
"Management need to participate actively in road shows around
the world, so it is vital that you have management in place
that can present well to international investors," she said.
said that IPO aspirants should be market leaders and outperform
competitors in almost all of the financial benchmarks such as
debt to equity ratio, EPS growth, sales growth, ROE,
profitability and EBITDA growth.
"In addition to the solid financial track record that a
company should demonstrate, it should also possess sound
corporate governance policies. International investors now
place huge importance in companies' corporate governance
structure, policies and procedures," she said. "A strong,
credible and experienced management team will also help
articulate your company's equity story better to foreign
Cheng said companies need to sort out their corporate
governance structures at a very early stage. "You must think
about hiring and engaging the necessary number of suitably
qualified and experienced independent directors and
commissioners prior to listing and that takes time," she
Aspiring Indonesia listcos also need to put in place the
corporate secretary, and hire an efficient investor relations
team, in addition to having an effective responsible person to
manage the listing process.
"For follow-on offerings, companies will need a good track
record and also a sizeable float," she concluded.
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