State-owned firms may dominate Indonesian IPO scene in 2020

People walk past a statue of a bull as they enter the Indonesia Stock Exchange (IDX) in Jakarta, Indonesia. Photographer: Dimas Ardian/Bloomberg

The capital market in Indonesia is at an interesting crossroads.

On one hand, a host of companies are queuing up to tap the bourses in the backdrop of strong macroeconomic fundamentals while on the other, some are adopting a ‘wait and watch’ policy before taking the final plunge.

The government is targeting an economic growth of 5.3 per cent in 2020 higher than that of 2019. During the first nine months of 2019, the Indonesian economy grew 5.04 per cent, lower than the government’s target of 5.2 per cent for the year.

State firms to lead the pack

Experts indicate that the capital market this year is likely to see a slew of IPOs by state-owned firms. Among those that are looking to tap the bourse are Wijaya Karya Realty and Wijaya Karya Bitumen, subsidiaries of state-controlled construction firm Wijaya Karya. Meanwhile, the country’s largest producer of sanitary napkins Softex Indonesia is also looking to raise around $500 million through an IPO.

Also likely to list is Indonesian cold chain logistics operator Diamond Group. DealStreetAsia earlier reported that the company is close to raising capital from Singapore state-owned investment firm Temasek Holdings.

Apart from these, a few from the startup ecosystem in the archipelago are also expected to make a capital market debut. Pigijo, a travel planner and marketplace that aggregates local experiences, guides, car rentals, and homestays, launched an IPO to raise 12 billion rupiah ($861,470), becoming the first startup to list on IDX’s Acceleration Board.

Going forward, experts estimate as many as 2-3 startups to list on the new SME-focused board this year. This is even as the bourse missed its ‘listing’ target in 2019. As many as 54 companies listed last year as against 57 in 2018.

The listings in 2019 were dominated by mid-sized and smaller companies, each raising below Rp 500 billion ($35.8 million). Only six companies – out of 54 newly-listed companies – raised more than Rp 500 billion.

Going forward, Indonesian unicorns are expected to adopt a cautious approach even as a listing is on the cards for them in the years to come.

Gojek co-president Andre Soelistyo said that the company will definitely conduct an IPO on the Indonesia Stock Exchange but it might go in for dual listing overseas. Tokopedia, too, expressed the same intention.

Meanwhile, in the traditional sector, low-cost carrier Lion Air has delayed its IPO yet again, as it recovers from the aftershock of the second-worst aviation accident in Indonesian history – one of its Boeing 737 crashed, after takeoff, into the Java Sea, killing 189 people on board. The carrier reportedly targeted to raise $1 billion in a 2020 IPO.

IDX president director Inarno Djajadi told reporters that IDX has set a target of 78 companies to raise funds through the capital market (IPO, bonds, etc) in 2020.

“We set conservative targets for 2020. This year [2019], we exceeded our target to have 76 companies fundraise through the capital market from the initial 75 companies,” Djajadi said in a recently held press conference.

The total fundraising by Indonesian companies in the capital market (including bonds) between January and December 2019 touched Rp 166.25 trillion ($11.94 billion), according to data available with Financial Services Authority (OJK). Funds raised from IPOs alone amounted to Rp 14.7 trillion ($1 billion) throughout last year.

Proposed Omnibus Law may boost listing activity

The Jakarta Composite Index (JCI), the country’s benchmark stock index, increased 1.7 per cent last year beating political uncertainty in an election year, a sluggish economy and the global uncertainty caused by the US-China trade row.

Besides the projected economic growth, bankers and analysts are currently betting big on the country’s much-anticipated law that is aimed at simplifying business regulations.

They are expecting the market to get a boost from the so-called Omnibus Law, first introduced by President Joko ‘Jokowi’ Widodo to the public at his inauguration speech a couple of months ago.

If passed, it would amend thousands of separate pieces of legislation that critics have blamed for the struggles of small and medium enterprises, as well as publicly-listed companies in the country, and for deterring investment into Indonesia.

Schroder Investment Management Indonesia president director Michael Tjoajadi said that the law will become one of the positive catalysts that will boost earnings per share of companies listed on the mainboard.

“With the tax incentive, companies will be efficient in using their capital,” Tjoajadi told the audience at the 2020 Market Outlook conference at Indonesia Stock Exchange (IDX) in December.

As part of the Omnibus Law, the government has proposed tax reforms that include relaxing taxes for Indonesians and expatriates; removing dividend tax and reducing income tax; and introducing a new digital economy tax.

If the Omnibus bill is passed by the House of Representatives this year, companies can look forward to a reduced corporate income tax, from the current 25 percent to 20 per cent, by 2023.

Publicly-listed companies can enjoy an additional 3 per cent tax reduction for five years, a measure that could encourage listings and boost stock market activity.

Global uncertainties weigh on 2020 market outlook

Citigroup Sekuritas Indonesia director and head of research Ferry Wong expects trade tensions to subside in 2020, as the US gears up for the presidential election in November. That could alleviate the pressure on Indonesia, whose two biggest trade partners are the US and China.

He estimates that the easing of trade tariffs would drive companies’ earnings up by “about 10 per cent next year”, a marked increase from this year’s earnings growth target of under 5 per cent.

Separately, an analyst from brokerage firm Binaartha Sekuritas Muhammad Nafan Aji told DealStreetAsia that political stability in Indonesia after the election will help boost the country’s economy in the months to come.

President Jokowi has been re-elected for the second term in the elections in April 2019. His rival, Prabowo Subianto, has joined Jokowi’s cabinet as Defense Minister, a move that political analysts believe could help bring stability in the country. “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.

Binaartha’s Aji expects that the main stock index will reach 7,015, while Citigroup’s Wong projected the JCI will stand at 7,050 by 2020.

However, Bima Yudhistira, an economist from the Institute for Development of Economics and Finance (INDEF) expects growth to be sluggish still.

In a phone interview, Yudhistira told us that 2020’s outlook is still weighed down by uncertainties stemming from the trade war, the US election and its outcome, political instability in Hong Kong, fear of recession, and fluctuations in commodity prices.

“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 is the year where all eyes are on geopolitical tensions, in the context of Trump’s impeachment and the much-anticipated US election. The outcome of both will have an effect on global investor sentiment, as well as how US-China trade negotiations pan out.

“The impact on Indonesia is that more and more investors are playing in safe assets, forex (dollars) and gold. They will be more careful to bet on stocks,” Yudhistira added. “Next year, hopefully, the government is able to focus on reforming comprehensive regulations through the omnibus law after the political tension eases.”

Sectors that are expected to be in action include telecommunications, given that the government has just completed the Palapa Ring satellite network and the network upgrade to 5G service.

“Other sectors would be education as it caters to growing Indonesia’s middle-class people who need a better quality education facility. In the digital sector, the trend would be insurtech, agritech and some of the recently-listed e-commerce firms,” he added.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.