If I could only complain one thing on the process of doing an initial public offering of shares in Indonesia, that must be the requirement for a proposed listed company to obtain from its creditors a waiver of any restriction on such company's capacity to pay dividends to its shareholders or any restriction of dividends payment on the subsidiaries level, provided that the proposed listed company income depends on the payment of dividends from its subsidiaries.

You will be amazed to know that this is not based on a strict regulation, rather it came from an unwritten policy of the Indonesian Capital Market and Financial Institution Supervisory Agency ("Bapepam-LK"). According to Bapepam-LK officials, when a company is trying to raise funds from the public, such company should be able to pay dividends to its shareholders since such dividends will become the main source of income for its shareholders. Therefore, any restrictions for dividend payment should be eliminated as well.

Okay, to certain extent the argument makes sense, but such argument is too simple to be used as a reason for forcing those proposed listed companies to obtain a waiver of their dividend payment restrictions. As far as I know, from the investors perspective, there are two main ways to obtain income from the capital market: (i) payment of dividends, or (ii) capital gain, i.e. buy low, sell high. In other words, dividend is not the only source of income, and in practice, not all investors focus on getting the dividends.

Furthermore, waiving the restriction of such dividend payment may significantly affect the possibility of securing a financing from financial institutions. As you may be aware, for companies, there are three ways of raising funds, i.e. (i) debt financing, (ii) equity financing, and (iii) hybrid financing (the combination of debt and equity financing). Some financial institutions would require its debtors to limit their payment of dividends to ensure that the debtors could have sufficient funds to repay their debts to these financial institutions. From my experience, there were some cases where the proposed listed company had to repay its debts because its creditors did not agree to waive the dividend restriction. If the debt is not huge, than that wouldn't be a problem, but if the amount is huge, the company will face a serious problem as getting the creditors approval might not be easy and the financial condition of the company may also be compromised.

I always believe that capital market regulations should focus on transparency, on how disclosures about the condition of publicly listed companies should be made, not on how they should perform or doing its business activities, that is the role of the management and that is why they are being paid. Forcing proposed listed companies to waive their dividend restrictions is essentially the same with limiting their choices between debt and equity financing, and I am sure that this is not efficient!

In my opinion, the most important thing is that the proposed listed companies have disclosed in their prospectuses that they have several debts and in those debts, they are being limited to pay dividends (fully or partly). If proper disclosures have been made, it is up to the investors decision on whether to invest in such companies or not. That would be the ideal things to have in Indonesia.

Unfortunately, this Bapepam-LK unwritten policy has not been revoked until today. The only thing that we could do now is to lobby Bapepam-LK and make them understand on this issue. Protecting Indonesian investors is very important, but we should also do that in a proper way, not by limiting the options of publicly listed companies, which in some cases, is actually counterproductive.