Indonesia Stock Exchange is weighing options to allow a dual-class share structure as the bourse seeks to draw listing interest from homegrown tech upstarts including several of the country’s IPO-ready unicorns.
IDX director I Gede Nyoman Yetna told DealStreetAsia that the bourse has conducted a legal review and held discussions with stakeholders on the issue of permitting dual-class structure to companies seeking to list on the bourse.
“We are in the legal review stage regarding the potential application of dual-class shares with the multiple voting share (MVS) structure in Indonesia. We are comparing norms followed by global exchanges that have already implemented the MVS so that we can determine the best practice. If the MVS is implemented in Indonesia, we are optimistic this policy will give an added value in choosing IDX as the listing venue,” Yetna said.
“With some efforts and policies from the bourse and the stakeholders, we hope to attract more interest from companies, including unicorns, to utilise the bourse in fundraising,” he added.
Indonesia is home to six unicorns, including ride-hailing giant Gojek, online travel agent Traveloka, digital payments firms OVO and GoPay, and the online marketplaces Tokopedia and Bukalapak.
IDX’s move comes as many of these unicorns are busy lining up IPO plans. Gojek and Tokopedia, for instance, are discussing various options to ultimately list the combined entity in Jakarta and the US, with a target valuation between $35 billion and $40 billion, Bloomberg reported.
Bukalapak is reportedly targeting an IPO this year in Indonesia while Traveloka plans to list the online travel agent in the US this year through the SPAC route.
A dual-class share structure means a company can issue two or more classes of shares that have different voting rights, dividend payments, and other features. Under this structure, founders enjoy super-voting rights that allow them complete freedom and flexibility to steer the enterprise while being a public-listed entity.
“Many of the big tech companies have founder shares or dual shares, which we are trying to address in the capital market,” said IDX commissioner and Indies Capital managing partner Pandu Sjahrir.
Mandiri Capital’s director Joshua Agusta says “founders are reluctant to go for IPOs in Indonesia as there is an assumption that they will lose control of their company, and make it be less competitive. Hence, the IDX is considering implementing dual-class shares with multiple voting rights.” Mandiri Capital is the investment arm of state lender PT Bank Mandiri Tbk and also a Gojek shareholder.
Globally, several tech giants like Google and Facebook have listed dual-class shares to maintain the autonomy of their founders even when their shareholding is less than other investors.
The practice of dual-class shares has been implemented in some global stock exchanges to attract listings, particularly from tech startups. New York Stock Exchange, among the oldest bourses in the world, reinstated dual-class shares in the 1980s after it imposed a ban on the structure in 1926.
Meanwhile, in Asia, the Hong Kong Stock Exchange and Singapore Stock Exchange have changed their regulations to allow companies to list dual-class shares since 2018. China’s Shenzhen Stock Exchange allowed the same in 2020.
Leveling up the game
By implementing the new rules, the bourse (IDX) can compete and level the game up with other stock exchanges, according to Nathaniel Mangunsong, managing partner, Adrem Law Firm.
IDX will have room to implement the dual-class structures as the Indonesian Company Law does not prohibit such structures, he said.
“As the Company Law allows specific stipulation on public companies, the stock exchange, in consultation with OJK, can stipulate a listing rule that allows offering the dual-class shares with multiple voting rights in Indonesia,” Mangunsong said.
Multiple voting rights are important for startup founders to effectively manage the company in line with its original vision and purpose.
Startups tend to get listed after raising later-stage funding rounds, resulting in a significant founder stake dilution at the IPO stage. Hence, multiple voting rights provide founders the tool to take the company to the next level by having significant influence in voting rights and board decision making, according to advocates of this model.
However, as a public-listed entity, these companies would also be required to put in place a mechanism to keep the founders and the management in check as part of good corporate governance practices, according to market observers.
Recent reforms, tepid response
In 2019, IDX eased the listing process for startups and SMEs to set up an acceleration board to provide access to cash-burning, growth-stage tech startups who would otherwise not be eligible to fulfil Mainboard listing criteria.
The acceleration board offers SMEs a cheaper listing fee of around $1,786 (the listing fee for the mainboard is up to $17,803) and allows for simpler accounting standards.
The listing rules classify small companies as those with assets below Rp50 billion ($3.57 million) and medium firms with assets ranging from Rp50 billion-Rp 250 billion ($3.57 million to $17.8 million).
Per the rules, startups that list on the acceleration board can report losses up to a maximum of six years post listing while providing periodic guidance on future outlook.
For Mainboard listing, companies need to have a minimum of Rp100 billion in net tangible assets and should have booked income from the operational activity for at least the previous year.
Meanwhile, the development board allows medium-scale companies with a minimum of Rp 5 billion in net tangible assets to list their shares.
The IDX had last month also launched a new industrial classification for over 700 companies listed on the bourse, seeking to attract more investment in technology and health care stocks. The new classification consists of 12 sectors, 35 subsectors, 69 industries and 130 subindustries. The earlier classification, or Jasica, had nine sectors and 56 subsectors.
The simplified rules have attracted a few smaller tech companies to tap the public market such as travel tech firm Pigijo and fintech startup Cashlez. This year, the bourse is targeting to attract three more listings.
The relaxation in rules has, however, not resulted in a single unicorn or a large venture-backed startup seeking an IDX listing so far.
Indonesia has seen the highest number of IPOs in Southeast Asia since 2018 with 51 companies listing on the bourse in 2020. However, the total amount raised, at $421 million, is much smaller compared with Malaysia, Singapore, and Thailand.
“Most startups don’t meet the net tangible asset criteria to list on the Mainboard. Hence, they will probably have to list either on the acceleration or development board. However, the liquidity from these two boards is still doubtful, hence many startups are hesitant to list,” adds Joshua Agusta.
The biggest concern with listing in Indonesia is the lack of precedent, according to the grab-and-go coffee chain Kopi Kenangan’s founder Edward Tirtanata.
“Indonesia has the biggest stock exchange in Southeast Asia, so liquidity is not an issue. Furthermore, the government does offer tax incentives for companies going public in Indonesia. However, for fast-growing tech companies that are still burning cash, a mature exchange like Nasdaq offers a lot of precedents,” he added.