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Indonesia’s moves to double the minimum free float of shares in listed companies and to increase ownership transparency could prompt some companies to delist from the stock market, analysts have warned.
Jakarta announced the reforms after index compiler MSCI in January warned it might downgrade Indonesia to a frontier market because of inadequate free floats — the portion of stocks available for investors to buy — and opaque shareholdings. The warning triggered a huge market sell-off. Investors expect the country to retain its “emerging” status in a separate MSCI decision due on Wednesday.
Analysts said it would be difficult for some companies to meet the requirement for a minimum free float of 15 per cent of total shares, even though the Indonesia Stock Exchange and Financial Services Authority gave them up to three years to comply, depending on their size.
Lotte Chemical Titan, which is part of South Korea’s Lotte group, has a free float of just 7.5 per cent, the current minimum, said this month it was studying whether it should remain listed. Solusi Tunas Pratama, a prominent telecoms infrastructure company that is part of the vast Djarum conglomerate and which has a free float of under 1 per cent, was suspended by the exchange last year and has announced it will go private.
Just 566 of 956 listed companies had free floats above 15 per cent at the end of March, according to stock exchange data released in May, the most recent available. FT calculations based on the data showed the total market cap of listed companies was Rp12,419tn ($699bn), with their free floats worth Rp3,173tn.
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The exchange has also tightened regulations on ownership disclosures, requiring shareholders to report stakes above 1 per cent, down from the previous 5 per cent.
Yanuar Rizky, senior economist at the Bright Institute think-tank, said some companies would delist rather than take the actions needed to increase their floats, while others might choose to go private rather than try to abide by the new shareholder transparency requirements.
“Natural selection will happen, there won’t be as many stocks,” Yanuar said.
The Financial Services Authority said in March it expected shares worth more than $11.4bn to be floated because of the new rule. Analysts say the Indonesian market is not deep enough to absorb the increase in tradeable shares, which is likely to put heavy downward pressure on stock prices.
Andre Benas, head of research at BCA Sekuritas, said that if there were not enough buyers, companies might resort to having nominees linked to them or their owners hold their shares in order to appear to meet the required free float.
“Eventually the companies will absorb it themselves, using other entities to [split stakes to] below 1 per cent,” he said, adding this was likely to be “the most common practice going forward”.
Nominee shareholdings are illegal in Indonesia if they are used to hide shares’ beneficial owners, but they are commonly used to conceal the extent of the stakes held by controlling shareholders. This can create the illusion that a greater proportion of the company’s stock is publicly held.
After the MSCI warning, authorities also raised the limit for insurance companies’ and pension funds’ equity investments to 20 per cent of total assets under management from 8 per cent, a move they hope will absorb the additional supply of shares.
However, analysts say the change has potential downsides, given the stock market’s high volatility.
Dwiwulan, a researcher at Indonesia’s Centre for Strategic and International Studies, said increasing investment by insurers and pension funds would add to their portfolio risk. “So it needs to be monitored carefully,” she said.
Retail investors with a mostly short-term outlook play an outsized role in Indonesia’s stock market, sometimes accounting for more than 50 per cent of trading and contributing to its wild swings in value.
Danantara, Indonesia’s sovereign wealth fund, has said it will increase investment in listed shares. Just days after MSCI’s warning in January, Pandu Sjahrir, Danantara’s chief investment officer, said the fund would invest at least $7bn of its capital in public bond and equity markets in 2026 — most of it in Indonesia.
Analysts said that Indonesian authorities would need to show commitment to enforcing the new transparency requirements to preserve the credibility of the stock market.
“Without strict monitoring and legal enforcement, chaos will still ensue,” Bright Institute’s Yanuar said.
MSCI said on Friday there had been a deterioration of information flow in Indonesian markets.
In an annual accessibility report for dozens of markets worldwide, MSCI highlighted what it called investability concerns about Indonesia based on “limited transparency in shareholding structures and co-ordinated trading behaviour that undermines proper price formation”.
