Faisal Maliki Baskoro, Muhamad Al Azhari & Reuters
Jakarta. Companies are racing the clock to raise funds through initial public offerings and rights issues before the end of the year as they look to capitalize on foreign-investor-fueled momentum on the Indonesia Stock Exchange.
According to data from the Capital Market and Financial Institution Supervisory Board (Bapepam-LK), 15 companies raised a total of Rp 16.7 trillion ($1.9 billion) by going public this year, while 22 companies raised a total of Rp 26.3 trillion through rights issues.
With near-zero interest rates pushing down returns in the United States, Japan and Europe, heightened investor appetite for Indonesian stocks and bonds has resulted in a rush of foreign funds into the coffers of Indonesian corporations.
“So why are people rushing to have a capital call this year? It’s for strategic reasons rather than because they have to do it. It is the momentum,” said Lin Che Wei, senior capital market analyst and founder of the consulting firm Independent Research & Advisory.
Investors are high on Indonesian stocks, expecting strong gains on the back of healthy earnings fueled by the nation’s strong economic growth, Lin said.
The Jakarta Composite Index has been the best performer of all the major Asian indexes this year, posting a 43.4 percent rise from January through October, fueled by foreign investors seeking the highest returns in the region. The country’s political stability and growing middle class in a population of 237 million have also helped fuel the rally.
According to Reuters, the Finance Ministry last week raised its 2010 economic growth forecast to between 6 percent and 6.2 percent from an even 6 percent due to stronger exports and investment in the second half.
Indonesia expects to graduate to an investment grade sovereign rating, a status that would put it on par with the BRIC nations of Brazil, Russia, India and China.
The upgrade would lower government borrowing costs and make investments here even more attractive. The government aims to boost infrastructure development including ports, roads and power plants to support GDP growth, with a 6.4 percent expansion forecast for 2011.
“We’re satisfied because this year the market has been performing well, and we’re encouraging more IPOs and investors,” said Ito Warsito, president director of the Indonesia Stock Exchange (IDX).
He added that eight more IPOs were expected on the bourse before the end of the year, pending approval by market regulator Bapepam.
The companies seeking to list shares in the fourth quarter include developer Agung Podomoro, which is seeking to raise Rp 2.25 trillion; state-owned Krakatau Steel at Rp 2.68 trillion; coal miner Borneo Lumbung Energi at Rp 4 trillion; and Bumi Resources Mineral, a subsidiary of the mining giant, which is aiming for Rp 3 trillion.
Ito said the IDX expected to see 25 IPOs and 35 rights issues next year.
“This is actually a high target. We will choose quality over quantity, prioritizing the IPOs and rights issues of sizeable companies,” he said.
The IDX, he added, would also encourage companies with less than 10 percent of their equity on the market to float more shares.
State flagship carrier Garuda Indonesia is expected to go public in the first quarter, eyeing proceeds of Rp 2.68 trillion. At about the same time, state-owned Bank Mandiri hopes to raise as much as Rp 14 trillion from a rights issue.
Analysts believe the strong appetite for Indonesian stocks will continue next year given the nation’s economic prospects, but some question how long the flood of liquidity will last.
“Next year will be a completely different ball game,” said Che Wei, former president director of state brokerage Danareksa.
He added that liquidity was being driven by the so-called currency war in which the United States, China and Japan have been keeping their exchange rates down to boost exports.
The resulting funds are invested in hopes of higher returns abroad, including in Indonesia’s markets.
However, with major economies vowing to end the conflict, the current high level of funding for stock issues in emerging markets could dry up.