Thursday, August 02, 2007 Vincent Lingga, The Jakarta Post, Jakarta
The government's decision to push ahead with Bank BNI's secondary offering of 3.95 billion shares despite the global rout that hit Asian stocks last Friday was the right move to reinvigorate the privatization of state companies.
Even though the stocks gained only the lowest end of the target price of Rp 2,050-2,700 a share, the positive response from domestic and foreign investors indicates the bright economic outlook.
Yet more encouraging was that almost half of the shares offered were taken up by foreign investors.
The July 26 steep falls in European and American stock markets, whereby the Dow Jones Industrial Average was down 3.2 percent, and the sell-off in Asian stock markets, including the Jakarta stock exchange on the following day, had initially set in a bearish sentiment on the Jakarta Stock Exchange (JSX). But the rosy economic prospects made the bank shares highly attractive to long-term investors.
Stronger economic growth predicted by most analysts for this year and next (6.2-6.5 percent) helped improved the market sentiment in the BNI share offering after the temporary fall last week because there was a positive correlation between economic expansion and the growth prospects of the banking industry.
The country's economy has indeed been growing robustly, especially since early this year, as consumer confidence has been strengthening and investments began to pick up amid weakening inflationary pressures and a bullish stock market.
For example, PT Astra International, the country's largest automobile group, on Tuesday announced its first half semester performance with a 41 percent increase in net profits built largely on the back of a 156 percent rise in net income from car sales.
Even much more meaningful than the Rp 8.1 trillion (US$885 million) raised by what has been dubbed the single largest stock offering on the JSX, is the greatly positive impact the transaction will generate on the supply side of the capital market, investor sentiment in the general outlook of the economy and the prospects of IPOs by state companies.
Amid the high flow of foreign portfolio capital to Indonesia since last year, investors have been complaining about the lack of new share issues available on the JSX.
A positive investor response to the share offering that reduced the government's stake in Bank BNI, the country's third largest financial service company, from 99.1 percent to 73.3 percent, would be a boon to the upcoming initial public offerings by three other state companies: Toll road operator and developer PT Jasa Marga and construction companies PT Wijaya Karya and PT Adhi Karya.
Minister for State Enterprises Sofyan Djalil rightly decided, immediately after his appointment as the minister for state companies in May, to privatize state firms mostly through the capital market instead of strategic sales, which are vulnerable to the collusion of vested interests.
A public listing on the JSX could be one of the most effective ways of developing good corporate governance at state firms in view of the stringent requirements of financial disclosure and high standards of accountability and audit imposed on publicly-traded companies.
Public listings also will help empower state company managements dealing with vested interests within the government and politicians who want to maintain state firms as their cash cows.
Of the nearly 140 companies that are majority owned by the government only 12 have been listed on the JSX but accounted for about 36 percent of the US$166.3 billion total market capitalization as of June.
Given the bullish market sentiment -- the JSX composite index has risen by 27 percent to almost 2,350, compared to January -- it is indeed the right time now to raise funds through share issues and at the same time increase the depth and breadth of the JSX.
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