Bapepam to revise IPO rules to protect companies

Ika Krismantari, The Jakarta Post, Jakarta | Sat, 01/03/2009 10:33 AM  

The Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) plans revision of the regulations on its initial public offering (IPO) scheme to ensure that firms wanting to go public are better protected from negative impacts of the global economic downturn. 

The revised regulation is expected to be issued in the first quarter of 2009, Bapepam chairman Fuad Rachmany said recently. 

Under the proposed regulation, companies planning to offer their shares to the public for the first time will be given a period of three months after securing Bapepam's approval to implement their plan. 

This is aimed at providing more time for reviewing the feasibility of their IPO, and to give time for reassurance that market conditions would be favorable for generating the expected proceeds despite the uncertainties in the global equity market. 

"We don't want that the market fails to absorb the shares due to unfavorable market conditions once the companies execute their plan for the IPO," Fuad said. 

Under the existing regulation, companies holding Bappepam's IPO approval are required to offer their shares to the public as soon as possible. 

The proposed regulation is a response to the October stock market collapse, in which several companies had to unexpectedly drop their IPO plans over concerns that the sales of their shares could not be fully absorbed by investors. 

While targeting some 25 companies to go public last year, the Indonesia Stock Exchange (IDX) only completed IPO procedures for 19 of them by the end of 2008. 

IDX president director Erry Firmansyah said earlier that 15 companies were planning to launch an IPO during 2009, with 11 of them already in the pipeline, including integrated oil and gas service provider PT Prime Petroservices and telecommunication network service provider PT Power Telecom. 

The stock market has yet to become a fully alternative financing option for the corporate sector in Indonesia, as the role of the banking sector is still considered predominant. 

Around 70 percent of funding for the corporate sector is still therefore being supplied by the banks, with the rest coming from the stock market and bonds. 

The revised IPO regulation will also require firms to get approval from the Bapepam before issuing a full public disclosure on their IPO plan, known also as the prospectus. 

The watchdog will examine the prospectus for any legal and future problems which may potentially cause losses to investors. 

Under the existing regulation, companies can distribute their prospectus to Bapepam and the public at the same time. 

"We don't want a case like PT Adaro Energy to reoccur, in which the public (has) already read the prospectus while Bapepam is still checking it, creating pressures on us later to grant the IPO approval," Fuad said. 

Bapepam drew criticism from analysts over its decision to give approval for the Adaro IPO, which was made in July last year. 

Although the IPO was a success for Adaro, gaining proceeds of Rp 12.3 trillion (US$1.08 billion), some investors thought the company did not merit the permit as it was still involved in a number of unresolved legal disputes. 

Bapepam will also shorten the selling period from a minimum of five days to only one day to make the IPO process more effective and efficient.