The Indonesia Stock Exchange, or IDX, is set for a busy period. After months of speculation, e-commerce firm Bukalapak is getting ready to mark its debut on August 6, becoming the first Indonesian unicorn to list on IDX. Most likely, other local tech giants like GoTo and Traveloka will follow.
Investors are welcoming Bukalapak’s moves. The e-commerce firm raised USD 1.5 billion after pricing its shares at the top of its IDR 750—850 range, the largest issuance so far in Indonesia, according to sources consulted by Reuters.
The buyers of Bukalapak’s IPO shares include long-term institutional investors, managers of sovereign wealth funds, and retail investors.
Increased confidence in IDX
As other tech companies like GoTo Group, Traveloka, Tiket, and Kredivo are reportedly planning to go public soon with dual listings in the US and Indonesia, the IDX is currently preparing new regulations to accommodate the tech sector. For instance, the bourse and Indonesia’s financial authority, OJK, are reviewing a new rule related to multiple voting rights (MVR), intending to give existing shareholders more control over the company.
The draft regulation stipulates that total assets for a company to implement MVR must be at least IDR 2 trillion (USD 138 million), while the business must have been operating for at least three years. Shareholders with MVR, either individually or collectively, can only own up to 47.3% of all shares. According to the new regulation, if they own more than that, the excess MVR will be considered common stock.
“The reason to implement MVR is to give more control to founders—who are the key people in the company—to maintain and realize the company’s long-term vision and mission once going public,” said I Gede Nyoman Yetna Setya, IDX’s director of corporate appraisal, through a message sent to local reporters via WhatsApp.
The new regulations are still being discussed by OJK and self-regulatory organizations such as IDX, the Indonesian Central Securities Depository (KSEI), the Indonesian Clearing and Guarantee Corporation, and other stakeholders in the capital market.
Vishal Sridhar, an analyst specializing in Southeast Asia at The Economist Intelligence Unit in India, believes that the new array of big tech companies to trade on the IDX will give a significant boost to the bourse’s market capitalization. It will also allure young retail investors and inspire other internet companies in the region to hit the local IPO market, he said.
“The coalition of abundant cash and the emergence of new retail investors in a low-interest-rate environment spiked trading volumes and sparked off an unprecedented streak of initial public offerings in 2020. We will see many startups from Southeast Asia hitting the primary market in 2021–22 as the ecosystem matures. Investors seek exits while the next wave of tech firms starts to emerge,” Sridhar told KrASIA.
While the Asian region, in general, has become a prime acquisition target for many SPACs, more capital market reforms are needed for regional exchanges to lure tech firms to go public at home, analysts say. “Exchanges like IDX ought to take a leaf out of Hong Kong’s book and come up with market-friendly reforms related to multiple classes of shares and a dedicated framework for innovative firms, with a low threshold for profits and revenues,” Sridhar said.
In line with Sridhar’s optimism, Suresh Dalai, senior director of operations management at a global business consulting firm Alvarez & Marsal, said that the new tech stocks will help to significantly improve the perception of IDX as a go-to exchange for IPOs. But, more crucially, it represents a jolt to the overall confidence in the Indonesian economy.
“Bukalapak is slated to be the largest IPO in history for IDX, which will improve the exchange’s brand. The number and value of listings in IDX declined last year due to the pandemic, but Bukalapak’s listing will encourage other companies to list and generate investment interest in 2021, pulling IDX out of the ‘doldrums’ of 2020,” Dalai said.
Increasing enthusiasm from retail investors
Based on data from KSEI, there were 5.6 million stock investors in June 2021 in Indonesia, an increase of 44.45% compared to the end of 2020, which counted 3.88 million investors. The numbers show an increasing interest in the country’s capital market, experts argued. OJK’s chairman of the board of commissioners, Wimboh Santoso, told local media that public interest in capital market instruments represents a shift in expenditure from consumption to investment, thereby increasing demand in the financial market.
Jeffry Lomanto, CEO of wealth management platform Moduit, told KrASIA that the enthusiasm of retail investors in hunting for technology-based stocks is very high at the moment, as seen from “the euphoria” towards shares of listed digital banks such as Bank Jago (ARTO), Bank Capital (BACA), and Bank Neo Commerce (BBYB) in the past year. “But in the end, investors will reconsider and analyze the match between the stock price and the company’s valuation in accordance with its fundamental conditions,” he added.
As Bukalapak is set to be the first unicorn to go public, retail investors will want to have a piece of the company, Alvarez & Marsal’s Dalai said. He drew comparisons with Sea Group’s stock price, which climbed tremendously last year, making it the most valuable public company in Southeast Asia.
“Retail investors have seen the rise in online shopping since the pandemic and understand the tremendous runway in e-commerce in Indonesia. The e-commerce market in Indonesia has grown more than five times between 2015 and 2020 and rose more than 10% amid the pandemic last year. I believe consumers will shop online even more post-pandemic,” Dalai said. “The fact that e-commerce companies like Shopee and Bukalapak have received high valuations, despite incurring significant losses, indicates a tremendous appetite for investment by retail investors.”
Will the hype last?
Moduit’s Lomanto said that investors might go out to buy shares and experiment—in part due to the hype but also because of fear of missing out. Investors at this stage are usually more intuitive than rational, more aggressive, and focused on wealth accumulation, he said.
“They are willing to try any investment instrument, especially if it’s on hype. However, the types of investments that offer short-term returns, such as stocks, gold, and crypto, are preferred,” he said.
Given the circumstances, it seems that investors’ enthusiasm for tech stocks will likely continue to increase as the major Indonesian big firms finally list their shares on IDX. Lomanto, however, prevented the risk of investing in unprofitable companies. “There are several considerations that can be done. First, we look at key growth drivers such as operating margins and cash flow. This way, investors can find out how expensive or cheap the company’s valuation is.”
Nonetheless, after experiencing a full market cycle, including profit and loss, investors will evolve, Lomanto said. They will be more serious about building portfolios and focusing more on wealth preservation. As a result, investment instruments like mutual funds and bonds, which provide stability and long-term returns, will remain in demand, he added.