Billionaire Stranglehold on Indonesian Shares Faces Reckoning

Article content

Critics argue that this level of concentration leaves Indonesia’s market unusually vulnerable to distortion. Last year, the benchmark Jakarta Composite Index surged 22%. Over the same period, the MSCI Indonesia Index, which applies stricter investability rules, fell 3.6%.

Article content

Read: MSCI Rule Shift May Spur $2 Billion Exit From Indonesian Stocks

Article content

That gap “can clearly tell you that the JCI was distorted by some of these tightly held, concentrated ownership kind of companies,” said Chih Kai Soh, who manages an Asean portfolio at Lion Global Investors in Singapore.

Article content

Last week, MSCI went further, warning that persistent ownership opacity may eventually cost Indonesia its emerging-market status – a designation that acts as a magnet for foreign capital. In a statement, the index provider cited “fundamental investability issues,” including complex shareholding structures and the risk of coordinated behavior influencing prices. It asked for greater transparency by May, or risk a downgrade to frontier-market status.

Article content

Opaque structures are hardly unusual in Indonesia, where wealthy families often control listed firms through layers of cross-holdings that are themselves publicly traded. MSCI said it needed more granular and reliable information to properly assess what is truly available to investors.

Article content

Article content

“Some of these points are valid,” Homin Lee, a senior macro strategist at Lombard Odier, said at a briefing on Jan. 29 in Singapore. “For the time being, we are a bit cautious.”

Article content

For larger conglomerates, meeting the higher free-float threshold may come with some pain. It will require substantial divestment which would “inevitably create selling pressure,” said Herditya Wicaksana, an analyst at MNC Sekuritas in Jakarta.

Article content

A spokesperson for Barito said the company is closely monitoring regulatory developments and will await further guidance. Indo-Rama Synthetics, Maha Properti Indonesia and Petrindo didn’t respond to questions from Bloomberg News about their ownership stakes or how they plan to meet the new free-float rules.

Article content

Regulators insist change is coming, if gradually. Friderica Widyasari Dewi, the acting chair of the Financial Services Authority, said on Feb. 1 that the higher free-float requirement would initially apply to new listings, with existing companies given a transition period. The FSA aims to implement a higher free float requirement by March at the latest.

Article content

“Raising free-float requirements can help create a healthier tradable base,” said Ke Yan, the head of research at DZT Research in Singapore. “But ownership transparency is just as important. Investors need clear disclosure of beneficial owners and affiliates so they can assess the true free float.”

Article content

—With assistance from Prima Wirayani and Patrick Winters.

Article content