Indonesia is bracing for a record amount of share sales to meet tougher free-float rules aimed at heading off a potential downgrade to frontier market status by MSCI Inc.
The Indonesia Stock Exchange estimates that 267 companies will need to lift their public shareholdings to 15%, up from the current 7.5% minimum, implying share sales worth about 187 trillion rupiah (US$11.1 billion or RM43.2 billion), according to listing director I Gede Nyoman Yetna.
That’s a scale of annual issuance that market has never seen before and equates to roughly four times its two-decade annual average, before excluding any unreported deals or informal block trades, according to data compiled by Bloomberg. For a market already struggling with credibility issues and foreign outflows, a record issuance will add another layer of pressure.
“It will be hard for it to get absorbed by the market,” said Bloomberg Intelligence strategist Sufianti. “The big amount and the uneven liquidity across securities may complicate absorption of additional supply.”
The push follows MSCI’s warning last month that Indonesia might be downgraded to frontier-market status over concerns about investability and limited free float, a move that triggered the worst market rout in nearly three decades. Regulators are now scrambling to restore credibility, boost liquidity and reassure global investors that the market remains accessible.
Indonesian authorities have pledged to satisfy MSCI’s concerns by March. Along with the higher free-float requirement, steps include tightening the disclosure threshold for significant shareholdings to 1% from 5%, and buying by sovereign wealth fund Danantara. The country has also seen leadership changes at its exchange and regulatory bodies.
Still, some analysts say the market has the depth to handle the expected wave of share sales.
“Indonesia has enough investors local and foreigner to absorb these share sales from companies and controlling families,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital. “It will help in meeting MSCI’s demands to an extent.”
Meanwhile, initial public offerings will also have to meet a higher bar for free float at 15% to 25%, depending on the company’s market capitalisation. That compares with the current requirement of 10% to 20%, depending on equity position.
No company has gone public in the nation so far this year. Indonesian listings raised US$1.1 billion last year, according to data compiled by Bloomberg.
Source: Bloomberg