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Indonesian tech start-ups consider going public

The COVID-19 vaccine rollout plans and the prospect for economic recovery have boosted optimism in the Indonesian stock market once again. The reported increase in retail investors and market potential in the country is giving a green light for a lot of tech companies that had always wanted to go public but were still unsure about it.

Several economists expect homegrown tech companies to produce more valuable stock market listings this year. The omnibus jobs law passed in 2020 to improve the business environment, as well as new regulations stipulating corporate tax cuts, are also seen as potentially providing a further stimulus. To cite another positive outlook for retail investors, the Indonesian Central Securities Depository (KSEI) revealed that the number of retail investors in Indonesia, as measured by the number of single investor identification (SID) numbers, amounted to 3.87 million.

With these recent developments, many local start-ups, including Indonesian technology companies have reportedly considered going public shortly. They are now in consultation with their respective advisors in their attempt to go public. Several tech companies have confirmed that their companies were considering a dual-listing option for their stocks in Indonesia and the United States. US retail investors feel more confident about investing in tech companies due to the significant number of publicly listed tech companies there, thus the public is familiar with their business models.

As previously reported by OpenGov Asia, the increasing number of tech start-ups operating in Indonesia is indicative of how the country is enjoying massive growth in its digital industry, thus prompting the government of launching its own Indonesian Start-up Database.

Taking these positive indicators, the Centre for Strategic and International Studies (CSIS) researchers said that local tech companies or “unicorns” valued at more than US$1 billion, could consider conducting an initial public offering (IPO) to secure funds, owing to their stronger valuations compared with digital start-ups. Indonesia currently has six unicorns.

Researchers believe that by going public in Indonesia, local unicorns can gradually educate the public about the nature of their business models. They added that although no Indonesian tech companies have yet gone public, they could have a positive ripple effect on fellow players if they choose to do so. Tech companies might see the prospect of going public in Indonesia as a gamble because local retail investors are yet to truly understand the business model of tech companies. Hence the expectation of gaining a return-on-investment right at the bat.

At the same time, by going public, these tech companies can familiarise regulators about their business models to encourage further relaxations for the sector, the researchers added.

On the topic of relaxation, the Indonesia Stock Exchange (IDX) is drafting a regulation to make it easier for the e-commerce sector to go public. The Director of the IDX bourse corporation valuation said that the currently deliberated regulation would focus on protecting investors from risks by familiarising them with the characteristics of the tech companies about to go public. He added that currently, the IDX was in close coordination with other regulators, most prominently the Financial Services Authority (OJK) to encourage local start-ups to go public. The regulators are also looking at the benchmarks of how other countries’ stock markets and regulators adjust their regulations to the business models of these tech companies.

The relaxation plan, among others, will allow companies that have yet to turn a profit within two years to go public. According to the Institute for Development of Economics and Finance (INDEF), the regulators’ increasing confidence in local start-ups’ attempts to go public can also pave the way for the development of a better ecosystem for local tech companies that have gone public in Indonesia.

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