Indonesia plans to create startup IPO market to draw investors

[SINGAPORE] Indonesia plans to establish a dedicated section within its main stock exchange to host initial public offerings by startups, as Southeast Asia's largest country pursues its vision of becoming a regional cradle of technology entrepreneurs.

It wants to set up a new trading market - tentatively called the "'technology board" - at the Indonesia Stock Exchange so founders and investors can more easily take their companies public, Communications and Information Technology Minister Rudiantara said.

The world's fourth-most populous country is on the cusp of an online boom after years of economic volatility, propelled by rising mobile penetration and one of Asia's youngest populations. E-commerce giants from Tokopedia to MatahariMall.com are capitalizing on rising incomes while global players like Uber Technologies Inc set up shop. The country may now see its first two unicorns or billion-dollar startups within the year, the minister said.

Rudiantara, who goes by one name, said a recent tour of Silicon Valley inspired him to push policies to create a thousand viable startups by 2020.

"All investors want to harvest their investments," Rudiantara, an executive at the nation's two biggest telecommunications carriers before joining government, told Bloomberg at a venture capital conference in Jakarta. "We want to provide them an exit strategy through the capital market by creating the technology board." President Joko Widodo, who came to power in 2014 on a reformist platform, wants to create a vibrant startup scene and use technology to galvanize the economy. His administration plans to allow full foreign ownership of e-commerce businesses, part of a dismantling of barriers in some industries that previously had investment restrictions.

Helping investors cash out through IPOs is one of the missing links in its nascent startup ecosystem. From China to Singapore, regional governments have set up markets to help small but rapidly expanding companies raise capital and allow investors faster exits.

Unlike more mature markets such as China that have produced tech billionaires, Indonesian exits have come mainly through mergers and acquisitions. Of 14 tech IPOs in Southeast Asia between 2001 and 2015, none were from Indonesia, according to a report this week by Singapore-based Golden Gate Ventures. Between 2005 and 2015, 26 Indonesian firms were merged or acquired, according to the report.

Officials from the Indonesia Stock Exchange have already reached out to gauge possible interest. Hendrik Tio, co-founder and chief executive officer of Jakarta-based e-commerce company Bhinneka.com, said he was among those approached and plans to take his company public as early as 2018.

"They are considering measures, what companies to enter the market, and what brokerages to be involved, who can trade," Tio said. "For us, an IPO is the most logical thing to do for our finances, and we'd also like Bhinneka to be owned by the Indonesian people." They can look to neighbours for inspiration. Singapore set up a secondary market board called the "Catalist" in 2007, intended for smaller companies that don't meet listing requirements on its main board. The Korea Exchange started a third market for tech startups in 2013.

The Financial Services Authority, Indonesia's markets regulator, and the stock exchange are among the entities now hammering out the details, Rudiantara said. Tito Sulistio, CEO of the Indonesia Stock Exchange, confirmed plans to enable the listing of startups and said officials are working on regulations.

"We also need infrastructure that can guarantee the liquidity," Sulistio said.

Samsul Hidayat, a director at the stock exchange, told reporters Thursday that regulators were considering other policies to aid cash-strapped startups, including smoothing the way for private equity investments and allowing IPO candidates to employ their parent companies' balance sheets to meet listing requirements.

It will probably take some time to start a technology-focused board, said Donald Wihardja, a partner at Convergence Ventures in Jakarta who joined Indonesian delegations to Silicon Valley in 2015 and also last month.

"Maybe there's only one or two tech companies ready for an IPO now, but if we wait until 20 companies are ready, it would be too late," he said. "It's a preemptive move that shows that Indonesia has an exit strategy designed for players." Quality - not quantity - is a priority in the quest for 1,000 startups. Rudiantara stressed that Indonesia wouldn't support entrepreneurs indiscriminately.

"These are startups with seed capital that have been through the process of incubation and accelerator programs, not just some techies who create an app," he said. "Indonesia will be on the world map for digital economy."

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