Asian stock column – Jakarta to clean up its act

By Elizabeth Pisani
837 words
7 January 1991
Reuters News
(c) 1991 Reuters Limited

JAKARTA, Jan 7, Reuter – The Jakarta stock exchange has a New Year resolution: to clean up its act.

"We want a fair market. We don’t want any more hanky panky," said Marzuki Usman, chairman of the state body Bapepam which supervises the exchange and which from January 1 assumed new powers to keep the market in line.

Analysts are sceptical about whether the new-look Bapepam will really do anything to polish up Jakarta’s image, tarnished by tales of dishonesty on the part of issuers, underwriters, brokers and investors alike.

"Everyone can be bought here, all professional opinion has a price," said an economist at a publicly listed bank.

Last year saw Bank Duta announce 420 million dollars in exchange losses just months after its public offering and nickel miner Inco sharply cut output projections a few weeks after listing.

Jakarta International Hotel suspended share trading before announcing a restructuring that altered the nature of the firm and diluted investors’ holdings by half. "Apart from straight fraud there’s routine disinformation. People have fallen so far short of their profit projections that no-one believes a word you say any more," said an analyst who runs foreign roadshows.

Most of the shares that have listed in the last year are now trading below their offer price. "We ask people not to print projections in their prospectus. Maybe we should ask them not to give any promises in roadshows (presentations)," Marzuki said in an interview. "Promises are hard to keep. If you don’t fulfil them it’s dangerous, you’re a liar."

Bapepam hopes to sell the exchange to its stockbrokers under rules to be announced next month, Marzuki said. But already it is stepping into its roles as watchdog and enforcer.

From now on all accountants, auditors and legal firms dealing with public issues must register with Bapepam.

"Then if they don’t perform according to their code of ethics they will be delisted. If there is misrepresentation in the prospectus, the underwriters will lose their licence," Marzuki said.

Analysts say Marzuki, who dragged the sleeping market out of its torpor in late 1988 as both regulator and promoter, seemed uncomfortable being more policeman than salesman.

"Knowing his laissez-faire attitude, I don’t know how he can play the supervisory role," one private economist said.

But Marzuki says he is perfectly prepared to use his powers for the good of a clean market.

"I would prefer to see one company go down for the sake of the market than vice versa," said Marzuki, while insisting too much regulation is a bad thing. "I tell my people (in Bapepam) that everyone has a whistle. But if too many of us blow it the traffic stops completely."

As the newly beefed-up market policeman, Bapepam will have to blow the whistle on cronyism that riddles the market if the bourse is to recover its sparkle of early 1990, analysts say.

"Many local joint-venture (underwriting) partners just want to use the firms as fundraising vehicles for their own business groups and their friends," said a foreign joint-venture broker.

Under the new rules, an underwriter cannot issue shares for a firm with which it is "associated".

"That is a very strong term," says Marzuki, explaining with a laugh that he would have to investigate deals between golfing partners.

"That is bloody vague," said a stockbroker who insisted that unrealistic pricing of issues between cronies and price support buying threatened the health of the market as a whole.

"Foreign investors are losing interest in Jakarta but they will still buy at the right price. Trouble is, you have to let a share reach the right price and that’s not happening," he said.

An anti-inflationary credit squeeze has mopped up much of the local investor interest in shares, and brokers say that despite new rules allowing local investment trusts they expect most 1991 demand to come from overseas.

It was overseas buying that took the newly-revitalised market index from under 400 at the start of 1990 to a peak of 681.82 in April and helped absorb listings that more than doubled to 123 over the year.

But as the Gulf crisis took hold, recession loomed in industrialised nations and dodgy projections threatened to dominate the Jakarta market, foreign buying fell off.

The composite index went from 611.98 at the start of August to under 400 in December. On Friday, it closed at 408.49.

Brokers say this is partly their own fault.

"Last year there was just so much uninformed stockbroker hype. Brokers would fly in for a week and be instant experts," one Jakarta-based foreign broker said.

"Until the broking community grows up, until you have people who know what they’re doing and think less about personal enrichment this market’s not going anywhere," he said. "That is something you can’t just go out and regulate."

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