Yohanes Obor & Yessar Rossendar

Indonesia's Planned Rule On Raising Capital May Hurt Retail Investors

Amid the fallout from the controversial PT Bank Century bailout, the capital market regulator on Thursday announced it would soon issue a regulation to allow ailing listed companies to raise capital by issuing shares without giving existing retail stakeholders the first option to buy.

If the rule is adopted, “companies may not issue preemptive rights to existing shareholders as required by law,” said Fuad Rahmany, chairman of the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK).

But analysts warn that the regulation will put retail investors at a disadvantage, because their stakes will be diluted if they are unable to take part in a company’s share sale.

According to the draft regulation, companies would gain access to funding “efficiently and quickly” to help them maintain operations amid financial difficulties.

When companies issue additional shares, existing shareholders generally have the first option to buy, but it can often take months to secure approval for a rights issue.

The draft regulation states that a secondary issue must still be approved by shareholders.

Companies eligible to raise funds in this manner include banks that received government bailouts that exceeded 100 percent of their assets, as well as nonfinancial companies whose liabilities exceed their assets by 80 percent.

Fuad, however, said Bapepam would seek input from investors before setting a new rule for secondary offerings.

Analysts say the proposed regulation is partly in response to uncertainty over the stakes of shareholders in Century, which received a Rp 6.7 trillion ($677 million) government bailout in November.

In recent months, the minority shareholders of Century have urged regulators to recognize their stakes after they were invalidated after the bailout.

“It is clear that Bapepam’s new regulation on capital enhancement is related to Bank Century’s case, as it aims to clarify the authority of the LPS [State-Deposit Insurance Corporation],” Edwin Sinaga, director of securities firm PT Financorpindo Nusa, told the Jakarta Globe on Sunday.

He said the government should allow retail investors to keep their stakes in Century, although their holdings are relative small.

Orias Petrus Moedak, president director of PT Reliance Securities, said the new scheme would dilute existing shareholders’ stakes because they would not provide preemptive rights to purchase an offering.

“New regulations to help companies raise funds more easily in the capital market is good, but it should not harm investor interests,” he told the Jakarta Globe.

“It is not particularly clear what the main goal of this new regulation is.”

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