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THE PROCESS OF GOING PUBLIC

PREFACE


A company is built with a hope that it will develop rapidly and last forever.

At the beginning, the company may well exist and fruitful in all its activities. However, as business competition tightened from year to year, new strategies are needed in order to survive the competition and especially to win.

For that reason, the Capital Markets offer a solution for funding to a company by changing the company's status from private company to public company through public stock offering (go public).

There are many benefits of becoming a public company, besides being provided with an alternative source of funding. Even for companies that are not in need of any fund to develop their business, going public still gives them many advantages. The process of becoming a public company itself is not as hard as you might have imagined. As long as the necessary documents have been well provided, the process of going public is relatively fast and easy.

Through this book, we hope that company’s founders, directors, commissioners and managers can have a better understanding on the definition of going public, its purpose, benefits, consequences and process.

We sincerely hope that you will find this book useful and we will see you at our Trading Floor.

 

Regards,

Ito Warsito
President Director.

 
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GO PUBLIC


Every private company has the chance to go public. It means that they can sell some of their shares to the public and list them in the Stock Exchange.

The decision of going public is a business decision taken after considering the benefits and consequences of going public. There are so many benefits a company can get by going public, but there are also some consequences that must be considered.

The most frequently asked questions then are when does a company need to go public and when is the right time to do it. There are no strict rules regarding these matters because the choice to go public or not depends on the company's needs and the interest of the shareholders.

The purpose of this book is to give a brief picture on the benefits and consequences of going public, the process of public offering, things a company need to consider, the requirements of listing in the Indonesia Stock Exchange and many more.

 

 

 

 I. THE BENEFITS AND CONSEQUENCES OF GOING PUBLIC

 

I.1. Benefits

1. Having Capital Access
Many companies face the problem of funding for the company’s development, working capital and business expansion. By becoming a public company, this problem of funding will be easier to solve because:

  • Your company can sell its shares to the public. By this way, your company can obtain a huge amount of fund all at once with a relatively smaller cost of fund, compared to that obtained from the bank. Besides, if your company has become a public company, it can hold a secondary offering without any limit in the future.
  • Public company has easier access to banking. By going pubic and having its shares traded in the Exchange, banking community will be able to know your company better and put their trust on it because they can learn your company’s financial condition anytime through the information disclosures announced by the company through the Stock Exchange. As a result, it is relatively easier for your company to have new loans with smaller interest rate considering your company's relatively smaller credit risk compared to that of a private company.
  • Public company has easier access to money market by issuing short or long term bonds. Generally, buyers prefer if the bond issuer is a public company. By going public, your company’s image and name will be well known by the banking community. This condition will not only help you to issue the bonds, but will also give you the opportunity to issue them in a competitive interest rate because the market tends to trust going public issuers than private ones.

2. Giving Competitive Advantage for Business Development
By going public, a company will receive a lot of competitive advantages for business expansion in the future, for example:

  • By becoming a public company, you can have the opportunity to invite your business partners such as your suppliers and buyers to become the shareholders. By doing so, your relationship with them will not only be limited to a business relationship, but it will grow to a deeper kind of relationship that involves quality and loyalty. This is because as shareholders, they feel a higher commitment to participate in developing the company.
  • A public company is required by many parties to continuously improve the quality of its operational performance, such as its service to its customers and other stakeholders, as well as its reporting system and surveillance aspects. This condition will improve the company's performance and quality of products from day to day, and provide a chance of business expansion in the future. Many public companies are able to maintain their business for a long period.

3. Providing Source of Funding for Merger or Company’s Acquisition
Business development though merger or acquisition is one popular way to improve the company’s business development. Shares of a public company traded in the Stock Exchange have certain market value. Therefore, public company, whose shares are traded in the Stock Exchange, will have easier access to gather fund needed for the merger by issuing new shares.

4. Improving Ability of Going Concern
The ability of going concern is the ability of a company to keep operating in any condition, even in conditions that lead to bankruptcy, such as the failure to pay the company’s debts to the third party, the rift between company’s founders, or even the changes of the market trend.

By going public, your company will be able to maintain its business continuance better than private company, as seen in the examples below:

  • In a family-owned business, a split may happen because of different ways of thinking between the owners. By going public, the problem can be solved without having to liquidate the company by selling all or some parts of the shares ownership to other party through the Stock Exchange. Besides, the offering basic price can easily be obtained since the market price of the shares is always available in the Stock Exchange.

    By going public, many problems and constraints of maintaining and developing the business will not only become the matters of the founders, but also of many people that have become the company’s shareholders.
  • If a company fail to pay its debts to the third party and restructurization is needed, going public will simplify the process. The debts can be conversed into shares, which will then be sold to the public through stock trading mechanism in the stock Exchange.


5. Improving the Company's Image
By going public, your  company is likely to receive attention from the media and financial community. It means that the company will get free publicity that will improve its image. A strong image of the company will bring positive influence to the company’s development in the future. This is very beneficial especially for smaller and medium companies because as they go public and have their shares traded in the Stock Exchange, their image will be equivalent to that of big companies with wide scale business and long historical experiences.

6. Improving Company’s Value
By going public and having its shares traded in the Stock Exchange, the valuation of the company can be obtained at anytime. Every improvement in the company’s operational and financial performance will generally increase the price of its shares traded in the Stock Exchange and the value of the company as a whole.

 

I.2. Consequences

 

  • Obligation to Comply with the Prevailing Capital Market Regulations
    The capital market does issue various regulations. But basically, all those have the purpose to help a company to develop better in the future. All shareholders, founders and management of the company need not to worry with many requirements they need to fulfill because there are quite many professional service that they can ask for help.

  • Sharing Ownership
    It means that the percentage of ownership will be lessened. Many companies that plan to go public are worried of losing their control over the company.  Actually, it is nothing to worry about because the minimum amount of shares that has to be sold to the public through Initial Public Offering (IPO) will not reduce the founders’ control over their company.

 

 

II. THE PROCESS TO BECOME PUBLIC COMPANY

Many people often ask whether the process to become a public company, which shares are traded in the Stock Exchange, is difficult or not. The answer is NOT AT ALL.

There are certain requirements a company needs to fulfill in order to become a public company. However, these requirements are basically not hard to fulfill even for a small company. In general, every company that has been operating for at least 12 months, owns at least Rp 5,000,000,000 (five billions rupiah) of net tangible asset, has received an Authentic Without Exception opinion from a public accountant registered in the BAPEPAM-LK for its latest audited annual financial report, has sold at least 50,000,000 (fifty millions) shares or 35 (thirty five) percent of its total issued shares (depends on which one is the smallest number) and has at least 500 (five hundreds) shareholders, can become a public company which shares are traded in the Stock Exchange.

Yourcompany should appoint one or more Underwriter to help preparing all of the documents needed and processing the public offering,

 

 

II.1. Things the Prospective Issuer Need to Prepare for the Public Offering

1. The approval of shareholders through the General Meeting of Shareholders.

2. Appointment of Underwriter to help preparing all documents needed and arranging marketing efforts so that the Public Offering will achieve success. Coordinating with Underwriter, a company need to prepare some documents needed, such as:

- Financial Report audited by a public accountant registered in the BAPEPAM-LK;
- Corporate budgeting along with its amendments prepared by the notary and approved by the competent authority;
- Legal audit by a legal consultant registered in the BAPEPAM-LK;
- Report from an independent appraiser, if needed;
- Public offering Prospectus;
- Several other documents as arranged in the prevailing provisions.

II.2. The Process of Going Public

To become a public company, which shares are listed and traded in the Indonesia Stock Exchange (IDX), your company needs to have the approval from IDX by enclosing the necessary documents. If the documents and information provided are sufficient and complete, it will only take 10 Trading Days to receive the listing approval from the IDX.  IDX will then give an approval letter of listing principles known as the Preliminary Agreement of Securities Listing.

After that, your company shall deliver a Registration Statement to the Indonesian Capital Market and Fnancial Institutions Supervisory Agency (BAPEPAM-LK) in order to performthe Public Offering.

If the Registration Statement is declared effective by the BAPEPAM-LK, your company can conduct a public offering. Generally, the whole process only took less than 10 Trading Days, depends on the duration of the offering period decided by your company and its Underwriter. If the offering period has ended, your company has officially become a public company, which shares are listed and traded in the Stock Exchange.

 

  

III. CLASSIFICATION OF THE LISTING BOARD


1. The stock listing is classified into two boards: Main Board and Development Board. The placement of the Issuer and prospective Issuer in each Listing Board depends on your company's fulfillment of the initial listing requirements for each Board.

2. Main Board is intended for prospective Issuers and Issuers of big size companies with track records, while the Development Board is intended for companies that have not yet fulfill the listing requirements of the Main Board, including companies that are on the state of reorganization.

 

 

Glossary


Securities
Securities are all kinds of paper assets, such as shares (stocks), bonds, debentures, Collective Investment Contract Units, future contracts, and every derivative of Securities.

Issuer
Issuer is the company that performs Public Offering.

Public Offering
Public Offering is the activity when a company sells its securities to the public according to the procedures stated in the Capital Market Law and regulations. It is offered through mass media or directly sold to more than 50 (fifty) shareholders at a certain price and in a certain time limit.

Prospectus
Prospectus is all written information related to the Public Offering that have the purpose to attract potential investors to buy the company's shares.

Best Effort
It is the Underwriter’s commitment to do its best in selling and/or marketing the prospective Listed Company’s shares on the Initial Public Offering.

Full Commitment
It is the Underwriter's full commitment to sell or market all of the company’s shares and pay a sum of money to the company for the amount of the offered shares on the Initial Public Offering.

 

Information Service

For further information, please contact:

CORPORATE SECERTARY
Toll free : 0800 140 2820
Fax : (021) 515 0330
Email : Webmaster@idx.co.id
Website : www.idx.co.id

 

 
 
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