Preface
A company is built with hope that it will continue to last, develop rapidly and keep exist for a long period of time.
At the beginning of the company’s establishment, its business activities might run smoothly. But as time goes, business competition is tightened, and new strategies are needed not only to maintain the company’s business, but also to win the business competition.
For that reason, the Capital Market gives a solution you can consider regarding your company’s funding, that is by changing your company’s status from private company to public company by offering your company’s shares to public (go public).
There are many benefits you can enjoy by becoming a public company. Benefit of funding is only one of them. Even to company that does not have any problem in funding, going public will still bring lots of benefits. Worth to notice that the process in becoming a public company is not as hard as you might imagine. As long as the documents needed are complete, the process of going public is relatively simple and fast.
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.
Hopefully this will be useful and I will see you on the Trading Floor.
Regards,
Erry Firmansyah
President Director.
Go Public
Every closed company has the chance to go public, which means that they can sell half of their shares to the public and list them in the Bourse.
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 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 is depend on the company 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 Bourse and many more.
I. THE BENEFITS AND CONSEQUENCES OF GOING PUBLIC
I.1. Benefits
A company can get a lot of benefits by going public. Some of the benefits are:
1. 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:
The company can sell their 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, in the future, your company can hold a secondary offering without any limit, if they have become a public company.
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 disclosure announced by the company through the Exchange. This condition will not only make the process of your loan easier, but also give you additional benefit of low interest rate because the credit risk of a public company is relatively smaller compared to private enterprise.
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. 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 will not only become 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 parts to continuously improve the quality of its operational performance, such as in the service to its customers and other stakeholders, the reporting system and surveillance aspects. This condition will improve the product performance of the company from day to day and open the chance of expansion in the future. Many companies that go public are able to maintain their business for a long period.
3. 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 Exchange have certain market value. Therefore, public company, whose shares are traded in the 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 going 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 movement.
By going public, a company will be able to maintain its business 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 part of the shares ownership to other party through the Exchange. Besides, the offering basis price can be easily obtained since the share market price is always available in the Exchange.
By going public, many problems and constraints a company might face when trying to keep running and develop do not only become the matters of the founders, but also of many people that become the company’s shareholders.
If a company fail to pay its debts to the third party and restructuring is needed, going public will make the process easier. The debts can be conversed into shares, which then are sold to the public through share trading mechanism in the Exchange.
5. Publicity
By going public, a 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 Exchange, their image will be equivalent to that of big companies with wide scale business and long historical experiences.
6. Higher Company’s Value
By going public and having its shares traded in the Exchange, the valuation of the company’s value 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 Exchange and also the value of the company as a whole.
I.2. Consequences
· Sharing Ownership
It means that the percentage of ownership will be lessened. Many companies that plan to go public feel worried of losing their control of 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 still maintain the founders’ control of their company.
· Subject to 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.
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 Bourse, 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. Overall, every corporation that has been operating for at least 12 months, having 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 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 having at least 500 (five hundreds) shareholders, can become a public company that shares are traded in the Bourse.
To help the preparation of all documents needed, including the process of public offering, a company has to appoint an Underwriter. The issuing company can appoint one or more Underwriters to support its process of going public.
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;
· 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 Jakarta Stock Exchange (JSX), a company needs to have the approval from JSX 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 JSX. JSX will then give an approval letter of listing principles known as the Preliminary Agreement of Securities Listing.
After receiving it, the issuing company will deliver a Registration Statement to the Capital Market Supervisory Agency (BAPEPAM-LK) in order to be able to do the Public Offering.
If the Registration Statement is declared effective by the BAPEPAM-LK, the issuing company can conduct a public offering. Generally, the whole process only took less than 10 working days, depends on the duration of the offering period decided by the issuing company and its Underwriter. If the offering period has ended, the issuing company has officially become a public company, which shares are listed and traded in the Bourse.
III. CLASSIFICATION OF THE LISTING BOARD
1. The listing is classified into two boards: Main Board and Development Board. The placement of the Issuer and prospective Issuer’s Listing depends on the fulfillment of the initial listing requirements on each Board.
2. Main Board is intended for prospective Issuers and Issuers of big companies that have track records, while the Development Board is intended for companies that have not yet fulfill the listing requirements of the Main Board and companies that are on the state of reorganization.
Glossary
Securities
Securities are all kinds of paper assets, such as IOU letters, shares (stocks), bonds, debentures, Collective Investment Contract Units, future contracts, and every derivative of Securities.
Issuer
Issuer is the company that is offering its securities to the public through the Public Offering.
Public Offering
Public Offering is the activity when an issuer sells its securities to the public according to the procedures stated in the Capital Market Law. It is offered through an ad on the mass media or directly sold to more than 50 (fifty) shareholders at a certain price and in a certain time limit.
Prospectus
Prospectus is every kinds of written information regarding the Public Offering that help to attract potential investors to buy One’s shares.
Best Effort
It’s 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’s when the Underwriter’s shows full commitment to sell or market all of the Listed 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:
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