(Bloomberg) — The stock price chart resembles that of an emerging-market penny stock: a 1,200% surge, punctuated by two crashes of more than 40%, all in less than nine months.
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But PT Barito Renewables Energy is Indonesia’s largest company by market capitalization: an $85 billion geothermal energy producer controlled by one of the country’s richest tycoons.
Barito’s wild swings — the most extreme among companies globally valued at $50 billion or more based on 30-day volatility — have baffled professional analysts, fueled retail trading and challenged regulators’ efforts to impose more order on an increasingly volatile market.
The episode offers a fresh reminder to global asset managers about the lack of transparency that sometimes accompanies investing in Indonesia’s $735 billion stock market. Barito said little that might explain why shares have soared, while authorities have failed to disclose details of trading restrictions imposed in late May that critics say have exacerbated the stock’s volatility.
The trading restrictions “meant to protect investors ironically undermined broader investor confidence,” said Mohit Mirpuri, a fund manager at Singapore-based SGMC Capital Pte. “In the short term, this situation is likely to deter risk-averse investors, especially if it is seen as an indication of broader market instability or regulatory challenges.”
The controversy dates back to June last year, when the exchange launched a new watchlist for volatile and troubled companies. The board was seen by regulators as a carefully crafted panacea to restore credibility to Southeast Asia’s largest stock market, which has been plagued by high volatility and shrinking liquidity. According to exchange rules, a company can be added to the watchlist for a number of reasons, including zero revenue growth, thin liquidity and trading below 51 rupiah for three months.
In March, the exchange increased the pressure on such companies by implementing a “full call auction” on all watchlist companies. The mechanism matches buy and sell orders, as is customary on major exchanges around the world during the opening and closing of trading. However, instead of switching to continuous trading, the auction would be implemented four or five times a day.
Initially, the restrictions were met with little fanfare, until the Indonesia Stock Exchange listed Barito Renewables in late May, without giving a specific reason other than the “significant increase” in its share price.
The market reacted quickly. Over the next two weeks, the company’s shares fell by nearly half, wiping out some 700 trillion rupiah ($43 billion) and sending the benchmark Jakarta Stock Exchange Composite Index down nearly 5 percent. The swings prompted FTSE Russell to delay the company’s inclusion in its large-cap index, which would have prompted fresh foreign inflows.
The addition also angered local traders, who said it damaged the market’s stability and dampened returns. In an act of defiance, they sent dozens of funeral flowers to the exchange’s office, calling for the auction to be killed. A Change.org petition signed by 16,000 users is calling for its repeal.
The exchange has defended the restrictions, arguing that they have increased price discovery for several penny stocks and boosted liquidity. Financial Services Authority Capital Market Supervisor Inarno Djajadi said the regulator is benchmarking its policy against similar rules in other countries.
Billionaire owner Prajogo Pangestu has since bought some 48 million more shares, which have soared 1,342 percent since the initial public offering last October in one of the country’s most anticipated listings. The company’s corporate secretary, Merly, said in a statement that Prajogo’s stake increase reflected his confidence in the company’s prospects.
Late last month, after a massive outcry, the regulator removed Barito Renewables from its watchlist without further explanation. Exchange Director Jeffrey Hendrik told reporters that the removal of some stocks was due to improved liquidity.
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Barito Renewables has just one analyst rating for the company, according to Bloomberg data. The company is majority-owned by PT Barito Pacific, which is majority-owned by Prajogo. It trades at 637 times trailing 12-month earnings, more than three times Adani Green Energy Ltd. Earlier this year, Indonesia’s stock exchange investigated for stock manipulation another Prajogo-owned company that had surged more than 6,000 percent since listing.
Investors are concerned that the watchlisting could trigger a knee-jerk reaction from traders. Four companies under MNC Group were put on the watchlist in late May, including PT MNC Asia Holding. That stock fell 60% in the two weeks after the listing. Shares of restaurant manager PT Sari Kreasi Boga fell nearly 70% within three weeks of its inclusion in the same month.
“Once stocks enter the (full auction), it’s like being in a dark prison, so people are panic-selling,” said Hasan Zein Mahmud, a former stock exchange executive and investor in Sari Kreasi.
Analysts say the uncertainty will accelerate an exodus of foreign capital. Broad macro concerns about uncertain fiscal policy and a weak rupiah prompted Morgan Stanley and HSBC Holdings Plc to downgrade the country’s shares last month.
“The (full call auction) rule could benefit small, penny stocks, but large ones like Barito could scare off investors, particularly foreign funds, given the less transparent and market-driven process,” said Sufianti, an analyst at Bloomberg Intelligence.
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