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The need for a better organised minority shareholder watchdog

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Louise Jardin
Louise Jardin
Louise Jardin has been in Asia for twelve years and written for a series of journals and newspapers including the Japan Times in Tokyo, CFO Asia and a number of financial journals across Asia. She now lives in Hong Kong. Disclosure: I have no direct investment holding in any stocks or bonds in Indonesia , and no plans to initiate any positions within the next 96 hours. The opinion expressed in this article is my own. I have no commercial relationship with any company cited on this website nor am I receiving any compensation from anyone except from Alpha Southeast Asia, controlling shareholder of www.whatinvestorswant.com

In any discussion about the capital markets and their viability as instruments of value accretion, investors need always be cognisant of their ability to cushion themselves against shocks.

In the case of minority shareholders, that objective is even more important, as they are on their own without the institutions backing in most cases.

In the first instance, investors should always conduct their own in-depth research and their transactions with certified professionals. Beyond that, once their money is committed, they are then exposed to the vagaries of the share market which, in this day and age, is highly unpredictable.

And, as Indonesia’s capital market matures and progresses, regulatory protection of minority rights becomes more important, not just because retail participation is necessary for growth, but also because foreign institutional funds buy and sell Indonesia shares, though not necessarily in sufficient quantities to acquire control.

In addition, our capital market needs to be in line with other jurisdictions such as Hong Kong, Singapore, and Australia, where the threshold of approval under the assets and liabilities method for mergers and acquisitions had been increased recently. Hence this discussion.

Minority shareholder watchdogs do not exist to impede business not is it in its interest to obstruct deals. On the contrary, in many takeovers, minorities benefit greatly, and do exit their investments with considerable profit.

But this only happens when the offeror’s valuations are broadly in line with the expectations of the minority.

Investment banks too, need to realise that minorities are not protected in every single merger or acquisition. Nor, might we add, is value created in every mergers and acquisitions either.

But investment banks are paid every single time they advise on these transactions – whether or not the transaction succeeds or fails. That is the crucial difference.

But where minority shareholder watchdogs are concerned, the protection of minority rights is the key raison d’etre, come rain or shine.

And in so doing, the goal should be to raise the profile of Indonesia’s capital market while investors are afforded a sense of security, a comfort level that their purchase of stocks will not one day go awry, out-muscled by the will of a larger group.

Poor governance has played a significant role in most financial crises. Steps to reduce systemic risk, protect investors and uphold fairness and efficiency in the capital market will come to naught if they are not coupled with the practice of strong governance.

Therefore, the quality and future success of Indonesia’s capital market rests greatly on how well its stakeholders govern themselves.

It is this mandate which has prompted the regulators and minority shareholder watchdogs to speak as one, to ensure that takeover transactions as well as other transactions, which in substance result in the same effect as takeovers, are regulated in the same manner so that investors are afforded the same level of protection.

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