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Fundraising to increase as more SMEs, SOE subsidiaries go public in 2021: Deloitte

Jakarta Post - November 27, 2020

Riska Rahman, Jakarta – Fundraising on the Indonesian stock market is expected to increase next year, Deloitte Indonesia has said, as more small and medium enterprises (SMEs) and state-owned enterprises (SOEs) are projected to go public in response to tax cuts and a relaxation of administrative requirements.

The Financial Services Authority (OJK) issued several regulations in 2017 that changed stock listing requirements for small businesses, making it easier for them to go public, Deloitte Indonesia disruptive events advisory leader Joe Lai said during a virtual briefing on Thursday.

In addition, many SOE subsidiaries plan to float their shares on the market next year.

"We can't really project how much next year's fundraising will be but we expect the number to rise, especially if state-owned enterprises go through with their IPO [Initial Public Offering] plans," he said.

The Indonesia Stock Exchange (IDX) has recorded a total of US$325 million raised from 46 IPOs this year as of November, with offerings dominated by small and medium-sized companies. The figure was 59 percent smaller than that of the same period the year before.

Several SOEs announced plans last year to take their subsidiaries public, including publicly listed construction companies PT Wijaya Karya (Wika) and PT Adhi Karya. However, the plans remain on hold indefinitely as a result of the COVID-19 pandemic.

Publicly listed toll road operator PT Jasa Marga announced on Wednesday that it was planning to take its subsidiary, property developer PT Jasa Marga Related Business (JMRB), public in the next few years, according to a filing with the IDX.

JMRB, the filing stated, was in the early study and preparation phases for the IPO. Joe also expected that Indonesia's IPO market would remain robust next year despite the continuing impact of the pandemic.

The government's strong push for SOEs to go public and the fiscal stimulus to support the nation's economic recovery would keep the IPO outlook positive in 2021, Lai said.

The government has allocated Rp 695.2 trillion (US$49.4 billion) for a stimulus package to strengthen the country's response to the pandemic and support the national economic recovery program. It also plans to set aside Rp 365.5 trillion for the recovery program next year, which is expected to have a significant multiplier effect on the economy that could bode well for the market, said Lai.

"Further corporate tax reductions for listed companies are also expected to create a favorable impact on the IPO market next year," he said.

The government has lowered the corporate tax rate to 22 percent this year from the previous 25 percent and will lower it to 20 percent in 2021. Listed companies with at least 40 percent of their total shares on the market can also enjoy an additional 3 percent reduction.

Big companies, however, still appear reluctant to seek funding on the stock market over fears that their value could not be absorbed by the local market.

To tackle this issue, Lai suggested that the country deepen its capital markets to absorb large IPOs.

"Once we have a deep capital market, big companies will no longer need to conduct dual listings and the IPOs can be fully absorbed by the domestic market," he said.

Indonesia recorded more IPOs this year than any other stock exchange in Southeast Asia, its third consecutive year holding the title, according to Deloitte.

Twenty more companies are in the bourse's IPO pipeline, IDX assessment director I Gede Nyoman Yetna said on Nov. 19.

The dramatic increase in retail investors throughout Southeast Asia will be a good opportunity for companies to go public, Deloitte Southeast Asia and Singapore disruptive events advisory leader Hwee Ling Tay said.

"Given the amount of money floating in the market, an IPO could be an opportunity for companies that are looking for additional funds to expand their businesses," she said.

Source: https://www.thejakartapost.com/news/2020/11/27/fundraising-to-increase-as-more-smes-soe-subsidiaries-go-public-in-2021-deloitte.htm