•    HOME   
•    NEWS   
•    BUSINESS   
•    INTERNATIONAL   
•    TECH   
•    SPORTS   
•    LIFE & TIMES   
•    OPINION   
•    MY JAKARTA   
•    BLOGS   

The Indonesia Stock Exchange is questioning a plan by PT Multipolar to reduce its shares outstanding through a reverse stock split, saying that the decision might not be in the interest of retail investors.

An exchange official said on Friday that if the company did not have a strong reason to back the plan it might not be approved by the capital market regulator.

A reverse stock split reduces the number of a company’s shares outstanding and increases its share price or earnings per share. The market value of the company, or its market capitalization, remains the same.

“Based on historical experience, [a reverse split] has the potential to reduce the value of the stock itself,” said Eddy Sugito, the exchange’s corporate appraisal director.

“For example, say the original stock price is Rp 100, and then after a 10:1 reverse stock split the stock price becomes Rp 1,000. Usually, the stock price falls again to, say, Rp 500, so it could be worse [for shareholders].”

In its disclosure to the Indonesian Central Securities Depository (KSEI) dated June 12, Multipolar said that it planned to perform a reverse stock split at a 10-to-1 ratio, meaning that 10 old shares would be exchanged for one new share and that the total number of shares would be cut to one-tenth of the original.

The company, however, failed to get approval from shareholders at a June 26 meeting because a quorum was not present.

Eddy said that IDX approval would not have been guaranteed even if shareholders had approved the split. The exchange, he said, would not permit such a move without a strong reason.

He added, however, that the bourse might approve a reverse stock split if a company had too many shares outstanding, say, more than 100 billion.

Pardomuan Sihombing, an analyst with PT Paramitra Alfa Sekuritas, shared Eddy’s view, saying that if the plan went ahead it could make retail investors more pessimistic about Multipolar’s stock.

“A company usually launches a reverse stock split if they want to increase the value of their shares without actually doing anything to improve their performance,” he said. “Or, a company thinks that their shares are too liquid because the price is so low, like with PT Bakrie & Brothers, for example, which has more than 93 billion listed shares.”

Multipolar is a holding company affiliated with the Lippo group. One of the company’s subsidiaries, PT Matahari Putra Prima, is one of the top players in the country’s retail sector.

On Friday, shares of Multipolar dropped Rp 3, or 5 percent, to Rp 57 (less than one cent).

PT Jakarta Globe Media is also an affiliated company of the Lippo group.