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State-owned companies to dominate Indonesia's IPO scene this year

Sanitary napkin maker Softex and cold chain operator Diamond plan floats

Listings on the Indonesia Stock Exchange in 2019 were dominated by mid-sized and smaller companies, each raising less than 500 billion rupiah. Only six companies out of 54 listing last year raised more than 500 billion rupiah.   © Reuters

JAKARTA -- The capital market in Indonesia is at an interesting crossroads. On one hand, a host of companies are queuing up to tap the stock markets against a backdrop of strong macroeconomic fundamentals, while on the other, some are adopting a 'wait-and-see' policy before taking the plunge.

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

Experts indicate that the capital market this year is likely to see a slew of IPOs from state-owned companies. Among those that are looking to tap the bourse are Wijaya Karya Realty and Wijaya Karya Bitumen, subsidiaries of state-controlled construction company 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 was close to raising capital from Singapore state-owned investment company Temasek Holdings.

Apart from these companies, several from the archipelago's startup ecosystem are also expected to make their 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 ($0.86 million), becoming the first startup to list on the Indonesia Stock Exchange's Acceleration Board.

Going forward, experts estimate that two or three startups will list on the new SME-focused board this year, even after the bourse missed its listing target in 2019. As many as 54 companies listed last year, down from 57 in 2018.

The listings in 2019 were dominated by mid-sized and smaller companies, each raising less than 500 billion rupiah. Only six companies -- out of the 54 newly-listed entities -- raised more than 500 billion rupiah.

Going forward, Indonesian unicorns -- startups valued at at least $1 billion -- are expected to adopt a cautious approach, even though listing is generally an important move for such companies.

Andre Soelistyo, co-president of ride-hailing startup Gojek, said the company would definitely conduct an IPO on the Indonesia Stock Exchange (IDX) but might go for a dual listing overseas. E-commerce group Tokopedia expressed a similar intention.

Meanwhile, in more traditional sectors, 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 after one of its Boeing 737 aircraft crashed after takeoff into the Java Sea last October, killing 189 people on board. The carrier was reportedly aiming to raise $1 billion in a 2020 IPO.

IDX president director Inarno Djajadi told reporters that the bourse had set a target of 78 companies raising funds through the capital market (via processes such as IPOs and bond issuance) 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 news conference.

The total fundraising by Indonesian companies in the capital market (including bonds) between January and December 2019 touched 166.25 trillion rupiah ($12 billion), according to data available from the country's financial services authority (known locally as OJK). Funds raised from IPOs alone amounted to 14.7 trillion rupiah throughout last year.

Proposed Omnibus Law may boost listing activity

The Jakarta Composite Index, the country's benchmark stock index, increased 1.7% last year, beating political uncertainty in an election year, a sluggish economy and the global uncertainty caused by the U.S.-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 in his reelection 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 would become one of the positive catalysts that will boost earnings per share of companies listed on the stock exchange's main board.

"With the tax incentive, companies will be efficient in using their capital," Tjoajadi told the audience at the 2020 Market Outlook conference at the IDX in December.

As part of the Omnibus Law, the government has proposed tax reforms that include relaxing taxes for Indonesians and expatriates; removing the 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% to 20%, by 2023.

Publicly-listed companies can enjoy an additional 3% 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 U.S. gears up for its presidential election in November. That could alleviate the pressure on Indonesia, whose two biggest trade partners are the U.S. and China.

He estimates that the easing of trade tariffs will drive companies' earnings up by "about 10% next year," a marked increase from this year's earnings growth target of under 5%.

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

President Widodo was reelected for a second term in elections in April 2019. His rival, Prabowo Subianto, has joined the 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.

Aji expects that the main stock index will reach 7,015 this year, while Citigroup's Wong projected it will stand at 7,050.

However, Bima Yudhistira, an economist from the Institute for Development of Economics and Finance, expects growth to remain sluggish.

In a telephone interview, Yudhistira told DealStreetAsia that the outlook for 2020 was still weighed down by uncertainties stemming from the trade war, the U.S. 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 was a year in which all eyes would be on geopolitical tensions, in the context of U.S. President Donald Trump's impeachment and the much-anticipated U.S. election. The outcome of both will have an effect on global investor sentiment, as will the outcome of U.S.-China trade negotiations.

"The impact on Indonesia is that more and more investors are playing in safe assets, forex (dollars) and gold. They will be more careful [when betting] 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 active include telecommunications, given that the government has just completed the Palapa Ring satellite network and the network upgrade to 5G.

"Other sectors would be education, as it caters to Indonesia's [growing middle-class] who need better quality education facilities," Yudhistira added. "In the digital sector, the trend will be insurtech, agritech and some of the recently-listed e-commerce companies."

DealStreetAsia is a financial news site based in Singapore which focuses on corporate investment activity in Southeast Asia and India. Nikkei recently acquired a majority stake in the company.

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