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By Elizabeth Pisani
798 words
13 November 1989
Reuters News
(c) 1989 Reuters Limited

JAKARTA, NOV 13, Reuter - The Jakarta stock exchange is pausing to draw breath, but analysts say that far from being discouraging the slowdown is a sign the market is growing up.

In the heady days of summer new listings could not keep pace with demand as investors, foreign and local, wanted in at all costs. Shares began trading at over twice issue prices.

In the last three months, the number of listed companies has jumped to 44 from 27, and the index, languishing at 323.88 at the start of August, soared to 507.40 on September 8. It closed at 435.92 on Friday.

The government helped create the right environment for the boom a year ago when it changed listing rules and began to encourage companies to join the 24 already on the board.

Central bank-backed finance house Ficorinvest P.T. was one of the first to benefit. It's mid-August listing opened at 21,500 rupiah from a striking price of 10,000.

In late September Lippo Pacific Finance was 108 times oversubscribed, although it actually lost money on its core leasing business.

But now, as new issues flow into the market, investors are beginning to look closely at pricing and prospects.

"The market is already telling issuers that quality will count. The casino is over," said John Style, of the joint-venture finance firm Jardine Fleming Nusantara (JFN).

Underwriters, their capitalisation stretched to the limit by the boom, are also getting picky.

"This month we have rejected 10 sub-underwriting proposals, because of our exposure, or because the issuer's information is not good," said Mohammed Hasan, a director of Multinational Finance Corp (Multicor).

Analysts cite inadequate or unreliable financial disclosure as a major stumbling block.

"You do get audited accounts, but you can't do much of the decision making based on those accounts," said Multicor director Robert Garden.

His colleague Hasan agreed: "Sometimes companies reappraise their fixed assets so they can sell at a certain price. We politely show them the door."

Analysts say the focus on disclosure is healthy in that it shows investors are beginning to think about fundamentals.

"The government has been catching so much flack that it may start controlling the quality of the companies more carefully," Philip Brewer of JFN said.

The state capital markets agency Bapepam has announced it will now take up to 90 days to vet companies rather than the current 30, and will limit listing permits to two a week.

"Bapepam has realized it can't go on doling out (permits). They have become stricter. Now is the time for the Indonesian stock market to correct," said Eric Nasution of Merchant Investment Corp (Merincorp). Until now, underwriters have been pressed to set a price long before a stock goes to market.

"Issuers are scared to death the market will fall and they will lose out. There's this 'we'd better rip people off while we still can' attitude," said a corporate finance executive.

Underwriters waiting for licences plan to set prices closer to issue dates.

But critics still worry that ties between issuers, brokers and underwriters from the same group leads to arm-twisting.

"It's a public secret that pressure on pricing, or to participate in an issue, comes from the group that is issuing," said Nasution of underwriter Merincorp.

Finance Minister Johannes Sumarlin has said underwriters will no longer be allowed to take a hand in issues by other companies in their group. Sumarlin added securities firms, joint-venture or local, will be allowed to be underwriters.

But as the huge premiums that seduced small investors dwindle, many are abandoning stocks and Jakarta underwriters are discovering risk.

Some analysts say no stocks have yet taken a blow because issuers have agreed to answer for the success of their own issues. "There have been under-subscriptions...but it seems issuers are stepping in and buying back stock," Brewer said.

There are also reports stocks are propped up on the secondary market. "You tell me why there are people buying at 10,500 rupiah when there are hundreds of people selling at 9,500," Brewer said.

"Lots of companies would be trading down if they were trading freely, but they're not," Brewer added.

Bapepam head Marzuki Usman has acknowledged that dodgy trading does happen and said a code of ethics is expected any day.

As share supply catches up with demand, forcing issuers to compete for investors and underwriters to take on risk, analysts expect the market to become more realistic.

"This is a very, very unregulated market," Brewer said. "There's lots going on that shouldn't be. But market forces are coming in and straightening things out.


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