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As the Rupiah continues to weaken against the US Dollar, having recently hit a new low of IDR 14,065, the Ministry of State-Owned Enterprise has pledged to spend approximately IDR 10 trillion on buyback shares in order to support the Jakarta Composite Index (JCI), which has plummeted by 3.97 percent in recent weeks to a new low of 4,163.73 points.In a bid to aid market recovery, the Financial Services Authority (“OJK”) has now relaxed buyback policies through the issuance of a Circular Letter that allows publically listed companies to repurchase shares at a 20 percent maximum of their paid up capital price.
Fadel Muhammad, Chairman of the Commission XI at the of House of Representatives, has stated his support for the new policy. According to the Chairman, such a strategy is urgently needed in the context of the current global economic uncertainties.
Chairman Muhammad has expressed his backing for the Circular Letter and has also suggested that the nation as a whole decrease its reliance on dollar transactions in order to save the weakening national currency in the face of a strong US dollar.
“I am concerned, there has to be immediate action on this issue, so that our exchange rate will not dip to IDR 15,000 per USD,” warned Chairman Muhammad.
Sounding a note of caution though, Deputy Chairman Heri Gunawan (Commission VI) has reminded the government that it should carefully weigh up the advantages and disadvantages of implementing a share-buyback policy before deciding to spend trillions of rupiah at a time when economy is so unstable.
“The plan to allow the buyback of shares may not necessarily be taken up by privately owned companies. Moreover, it is also likely that not all state-owned enterprises will choose to buy back shares either, due to numerous factors such as prices, unclear budgeting issues, and so on,” said Mr. Gunawan explained.
Invoking a history of share buybacks that has often resulted in opposite outcomes from the ones originally sought, Mf. Gunawan expressed his hope that the country’s state-owned enterprises would be able to accurately calculate profits and losses if a policy of share buyback was pursued.
“Stock prices could very well drop instead of stabilizing. Therefore, state-owned enterprises should remain cautious and should prudently calculate potential profits and losses, especially with regard to stock that is already on the market,” stated the Gerindra Party politician.
In spite of his concerns however, Mr. Gunawan is still hopeful that the buyback policy can serve as a stimulus which will prevent the JCI from dropping to a lower level.
“However, the government should remain cautious and calculate market momentum as well as profits and losses wisely, as IDR 10 trillion is no inconsiderable sum of money. Moreover, the economy at present is highly unstable and commodity prices are in horrific decline,” concluded Mr. Gunawan.
Following the OJK’s implementation of various stimulus measures last July, in response to regional- and global-economic conditions, the Circular Letter has been targeted for issuance on the third week of August. It is believed that the buyback policy and Circular Letter will reassure many businesses as regards the nation’s capital market. Furthermore, it is also believed that such a policy will help to dampen down current market fluctuations.
(sp)
Nadia Maharani
As the Rupiah continues to weaken against the US Dollar, having recently hit a new low of IDR 14,065, the Ministry of State-Owned Enterprise has pledged to spend approximately IDR 10 trillion on buyback shares in order to support the Jakarta Composite Index (JCI), which has plummeted by 3.97 percent in recent weeks to a new low of 4,163.73 points.In a bid to aid market recovery, the Financial Services Authority (“OJK”) has now relaxed buyback policies through the issuance of a Circular Letter that allows publically listed companies to repurchase shares at a 20 percent maximum of their paid up capital price.
Fadel Muhammad, Chairman of the Commission XI at the of House of Representatives, has stated his support for the new policy. According to the Chairman, such a strategy is urgently needed in the context of the current global economic uncertainties.
Chairman Muhammad has expressed his backing for the Circular Letter and has also suggested that the nation as a whole decrease its reliance on dollar transactions in order to save the weakening national currency in the face of a strong US dollar.
“I am concerned, there has to be immediate action on this issue, so that our exchange rate will not dip to IDR 15,000 per USD,” warned Chairman Muhammad.
Sounding a note of caution though, Deputy Chairman Heri Gunawan (Commission VI) has reminded the government that it should carefully weigh up the advantages and disadvantages of implementing a share-buyback policy before deciding to spend trillions of rupiah at a time when economy is so unstable.
“The plan to allow the buyback of shares may not necessarily be taken up by privately owned companies. Moreover, it is also likely that not all state-owned enterprises will choose to buy back shares either, due to numerous factors such as prices, unclear budgeting issues, and so on,” said Mr. Gunawan explained.
Invoking a history of share buybacks that has often resulted in opposite outcomes from the ones originally sought, Mf. Gunawan expressed his hope that the country’s state-owned enterprises would be able to accurately calculate profits and losses if a policy of share buyback was pursued.
“Stock prices could very well drop instead of stabilizing. Therefore, state-owned enterprises should remain cautious and should prudently calculate potential profits and losses, especially with regard to stock that is already on the market,” stated the Gerindra Party politician.
In spite of his concerns however, Mr. Gunawan is still hopeful that the buyback policy can serve as a stimulus which will prevent the JCI from dropping to a lower level.
“However, the government should remain cautious and calculate market momentum as well as profits and losses wisely, as IDR 10 trillion is no inconsiderable sum of money. Moreover, the economy at present is highly unstable and commodity prices are in horrific decline,” concluded Mr. Gunawan.
Following the OJK’s implementation of various stimulus measures last July, in response to regional- and global-economic conditions, the Circular Letter has been targeted for issuance on the third week of August. It is believed that the buyback policy and Circular Letter will reassure many businesses as regards the nation’s capital market. Furthermore, it is also believed that such a policy will help to dampen down current market fluctuations.
(sp)