JAKARTA: Many businesses in Indonesia remain under family control, but investment bankers say the segment offers ripe pickings for corporate action including initial public offerings (IPOs) once a new mindset – or a new generation – takes hold.
Indonesia has a low stock-market capitalisation-to-gross domestic product (GDP) ratio when compared to other countries, even in Asean, meaning less of the country’s economic productivity is reflected in the stock market.
The increased participation of family businesses in IPOs would contribute to a larger stock market value, said Andry Satrio Nugroho, an economist at the Institute for Development of Economics and Finance (Indef).
“The lack of family businesses going public and the limited number of multinational corporations operating in Indonesia are significant contributors to the country’s low stock market-to-GDP ratio,” Andry told The Jakarta Post.
More domestic IPOs would also increase the number of reputable companies for investors, noted Muhammad Harits Zaenal, an investment banker with Sucor Sekuritas: “Therefore, IPOs are theoretically recommended for Indonesian companies.”
However, he added, many firms were principally resistant to the idea of an IPO, sometimes because of their understanding of the IPO concept.
“It is noteworthy that, in family businesses, the relationships are intricate, and not everyone is inclined to trade shares of their company publicly,” stated Muhammad.
Family companies may prefer to retain ownership inside the family and not involve external parties, Muhammad said, adding that there was concern that IPOs could result in negative public sentiment if they do not proceed smoothly.
Aside from being generally inclined to shy away from going public, many business owners see no need to do so from a financing perspective. Prominent companies maintain the belief that they can effectively handle their finances without resorting to an IPO.
Muhammad, who advises many companies on the pros and cons of IPOs, cited the example of “an oil and gas company with a valuation in the trillions of US dollars that has yet to conduct an IPO”.
For smaller firms, the cost to initiate an IPO, starting at four billion rupiah, was simply too high, he added.
He also alluded to the increased public scrutiny that typically accompanies public listings: “For instance, if a company is perceived as being insufficiently concerned about a particular issue (of public concern), it may face a widescale boycott threatening to impact its revenue and related aspects,” Muhammad said.
However, he sees “a considerable amount of potential” for corporate action because of the presence of numerous sizable companies that remain in family hands.
One impediment to some IPOs, he added, was that companies had yet to register with the government’s Online Single Submission (OSS) system, which would simplify the public dissemination of information in preparation for an IPO.
Mira Arifin, Indonesia country executive at Bank of America, noted that in the past two years, numerous respectable family-owned businesses had gone public.
“Along with dilution of stake, a lot of the time, there is a mismatch of expectations on valuations. This keeps a lot of family-owned businesses away from IPOs,” while some medium-sized companies still rely on bank loans for financial support, Mira said.
Lokky Win Wijaya, a native of Bandung, has been actively engaged in his family’s textile enterprise for a quarter of a century.
Illustrative of many family business owners’ avoidance of publicity, Lokky declined to reveal the name of the company, established by his parents in 1967, for the purpose of this article.
A supplier to prominent sportswear brand Nike and others, the company also exports its products to many countries including Cambodia, China and Morocco.
He had considered an IPO himself, but multiple factors convinced him to refrain from going public for now, said Lokky, explaining that many business families failed to properly comprehend IPOs and sometimes their accounting did not meet required standards.
“Regarding the readiness for an IPO, my family business is currently unprepared, and others may be facing the same,” Lokky said. — The Jakarta Post/ANN