Few IPOs & Rights Issues: Fundraising in Indonesia's Capital Markets Low
Fundraising in Indonesia's capital markets touched a multi-year low in the first quarter of 2016. Based on data from Bloomberg, only IDR 142.1 billion (approx. USD $10.8 million) was raised through rights issues and initial public offerings (IPOs) on the Indonesia Stock Exchange in Q1-2016, the lowest figure in the past seven years. Analysts expect fundraising in the capital markets of Indonesia to improve from the second quarter of 2016 onward due to expected accelerating economic growth and Bank Indonesia's lower interest rate environment.
In the first quarter of 2016 only three Indonesian companies conducted an IPO on the Indonesia Stock Exchange: Bank Artos Indonesia (ARTO), Mitra Pemuda (MTRA), and Mahaka Radio Integra (MARI). Financial institution Bank Artos Indonesia raised IDR 31.8 billion by offering 241.3 million new shares, or 20 percent of the company's enlarged capital, on 12 January 2016. Construction company Mitra Pemuda collected IDR 31.5 billion by releasing 170 million new shares (or 21.3 percent of its enlarged capital) on 10 February 2016. Lastly, radio broadcaster Mahaka Radio Integra collected IDR 79 billion by issuing 105 million new shares, equivalent to 20 percent of its total paid-up equity, on 11 February 2016.
The Indonesia Stock Exchange (IDX) recently stated that 40 other companies have expressed their intention to list on the IDX this year. Seven of these companies have already conducted a 'mini expose', an event in which the companies present their IPO plans as well as financial performances to the IDX. Cikarang Listrindo is the company that is in the most advanced stage to conduct an IPO. This power producer plans to raise USD $300 million by selling a 20 percent stake to the public through an IPO in June. The company is part of the Brasali Group, a property developer controlled by the brothers Iwan and Aldo Brasali.
Fundraising in Indonesia's capital markets (through rights issues and IPOs) is expected to improve in the second quarter of 2016 due to heightened expectation of improving macroeconomic conditions. Indonesia's GDP growth is expected to reach 5.3 percent (y/y) in 2016, up from a growth pace of 4.8 percent (y/y) in 2015. This should manage to boost private sector investment. The Q1-2016 GDP growth rate, which is scheduled to be announced by Indonesia's Statistics Agency (BPS) in early May, will inform further whether the economic acceleration that we saw in Q4-2015 persists. A disappointing figure could make markets depressed again and make companies decide to delay business expansion amid disappointing economic growth.
Secondly, the lower key interest rate (BI rate) of Indonesia's central bank will have a positive impact. During the first three monthly policy meetings this year, Bank Indonesia cut its BI rate by a total of 75 basis points to 6.75 percent. Usually, the impact of a rate cut is felt around three to six months after the cut. Hans Kwee, Director of Investa Saran Mandiri, said when credit expansion and business grows then companies are more enthusiastic to conduct an IPO.
Fundraising through Rights Issues and IPOs in Indonesia:
| Q1-2010 | Q1-2011 | Q1-2012 | Q1-2013 | Q1-2014 | Q1-2015 | Q1-2016 | |
| Fundraising (in IDR billion) |
29,606.2 | 19,953.3 | 3,641.0 | 20,641.4 | 7,294.8 | 5,531.2 | 142.1 |
| Number of IPOs | 12 | 9 | 7 | 14 | 11 | 4 | 3 |
Source: Bisnis Indonesia
Severe volatility in the stock market, caused by uncertainty about global economic growth, the US monetary policy and China's economic slowdown, made many companies reluctant to conduct an IPO on the Indonesia Stock Exchange in 2015 and Q1-2016 as companies need to offer their shares at cheaper prices to attract investors. Last year only 18 companies were added to the IDX, way below the initial target of 35 IPOs.