IDX Imposes Research Report Requirements for Initial Public Offerings (IPOs) and IDX Listings

On 25 July 2023, the Indonesia Stock Exchange (Bursa Efek Indonesia or IDX) circulated letter No. S-05957/BEI.PPU/07-2023 (IDX Letter 5957) to all directors of IDX members, including licensed brokerage securities companies. 

IDX Letter 5957 is highly relevant to investment bankers as it requires that underwriters submit an equity research report (Research Report) to the IDX to confirm the quality of listing applicants.

This new approach is intended, among other things, to improve the quality of the listing applicants’ disclosure and increase market attractiveness.  The Research Report is generally required to be submitted at the time of the listing application and on an on-going basis (at least twice a year) after the listing has been completed.      

A summary of IDX Letter 5957 follows.

RESEARCH REPORTS FOR LISTING APPLICATIONS 

• It is mandatory for companies intending to carry out an IPO in connection with a listing on the main and development boards of the IDX to engage underwriters. As part of the listing applicant's IPO valuation exercise, the underwriters customarily prepare a Research Report on the applicant. However, submission of a Research Report to the IDX during the listing application process had been an unwritten requirement until now. IDX Letter 5957 clearly states that the submission of such a Research Report is now a pre-requisite for obtaining the IDX’s principal listing approval. 
• In connection with an IPO, at least one of the underwriters involved in the listing application must submit a Research Report to the IDX. The Research Report contains information on the relevant listing applicant and the expected projected fair value of the listing applicant's share price for the purpose of determining the IPO price range. The Research Report should discuss the listing applicant’s business prospects to support the stated valuation of the listing applicant's shares, the share price valuation method used, and the determination of a fair share price for the purpose of determining the IPO price. 
• With regard to the listing applicant's IPO valuation as disclosed in the Research Report, the IDX requires the use of at least two methods of valuation to promote an accurate and objective valuation. Various factors should be considered for such valuation, including the methodology and assumptions used for the valuation, and the characteristics and business activities of the listing applicant. The selection of the valuation methods should also be adequate for the listing applicant’s industry. For instance, the “discounted cash flow” method (DCF method) should be used for real sector (sektor riil) companies (eg, manufacturers of goods).

POST-LISTING RESEARCH REPORTS  

To increase the market attractiveness and visibility of newly listed companies, simultaneously with the submission of the share listing application, the IDX now requires a copy of the contract between the company and the lead underwriter in the IPO that sets out the lead underwriter’s plan to issue Research Reports. This requirement applies to all companies that submit listing applications after 15 August 2023.

Once a company is listed on the IDX, the lead underwriter must submit Research Reports to the IDX at least twice a year, in compliance with the following deadlines:

• the first Research Report must be submitted between the end of the third month and the end of the sixth month following the listing date of the company's shares on the IDX; 
• the second Research Report must be submitted no later than the end of the 12th month after the listing date; and
• the date of publication of the second Research Report must be at least three months after the date of publication of the first Research Report. 

Post-listing Research Reports must:

1. be published in the Indonesian and English languages;
2. be comprehensive, and include (among other things) the company’s profile, micro and macro analyses relevant to the company, financial performance analysis, the company’s prospects, and the valuation method and results;
3. include information about the underwriter issuing the Research Report, such as the underwriter’s name, the names of the relevant research analysts who authored the Research Report, and the date of the Research Report;
4. discuss at least two valuation methods, as discussed above; 
5. disclose the considerations behind the underwriters’ choice of valuation methods used in the Research Report;
6. disclose the valuation results; and
7. not include any buy/sell recommendation or comments on overvalue/undervalue of the share price, which may only be shared by the lead underwriter in the Research Report published on the lead underwriter’s own platform. 

Please note that if the offering of equity securities contemplated by the listing applicant also includes an international tranche, then international market practice, international selling agents' compliance rules and policies, and US rules and guidelines may also apply to the contents, timing and dissemination of pre-deal research reports prepared for international investors. Related requirements would need to be considered and applied in addition to existing and new Indonesian requirements discussed above. 

We will monitor closely whether the new requirements achieve the IDX’s goal of increasing market attractiveness for IDX-listed companies.  

Please do not hesitate to contact us if you would like to discuss how these changes might affect any plans you have in connection with a future IPO and listing in Indonesia.