Indonesia raises free-float and transparency requirements, which may trigger a wave of delistings among listed companies

Glonghui, June 24 – Analysts have warned that Indonesia’s decision to double the minimum free float requirement for listed companies and tighten equity transparency rules may force some businesses to delist. MSCI warned this January that, due to insufficient free float ratios and opaque ownership structures, Indonesia could be downgraded from an “emerging market” to a “frontier market.” Indonesia subsequently announced relevant reforms. Analysts pointed out that, although the Indonesia Stock Exchange and the Financial Services Authority are allowing companies up to three years of transition period depending on company size, some businesses will still struggle to meet the new requirement that at least 15% of total shares be free floating. According to data released by the Indonesia Stock Exchange in May, as of the end of March, only 566 out of 956 listed companies had a free float ratio above 15%. The exchange also lowered the shareholder disclosure threshold from 5% to 1%. Yanuar Rizky, Senior Economist at the Bright Institute think tank, said some businesses might choose to delist rather than take steps to increase their free float ratios; others may opt for privatization instead of complying with the new shareholder transparency requirements. Indonesia’s Financial Services Authority stated in March that it expected the new rules would bring shares worth over $11.4 billion into the free float market. Analysts believe the Indonesian capital market lacks the depth to absorb such a large amount of newly tradable shares, which could put significant downward pressure on share prices.