Tuesday, December 18th, 2007, marked the new era in the history of Indonesian capital market due to the introduction of a brand new mutual fund in Indonesia called Exchange Traded Fund (ETF). The Fund, known as  the Asian Bond Fund ETF - Indonesia Bond Index Fund Bahana TCW (R-ABFII) is sold at the launching date at Rp 13,003 per unit.  The benchmark for R-ABFII is the State of Indonesia Bond (SUN) Index  published in the form of iBoxx ABF Index, which is managed by an international independent institution based in Frankfurt - Germany: International Index Company (IIC). The Fund is considered to be a very unique and attractive alternative for investment with the credibility as high as the sovereign rating of Indonesia. By investing in the Fund, investors easily get diversified government portfolio. Furthermore, ETF is much more competitive compared to conventional fund, because investor will be charged less brokerage fee. In addition, ETF is the only product which reflects the efficiency level of government bond market in Indonesia. The Fund could be seen be seen as the investment grade equivalent with the sovereign rate of Indonesia. Accordingly, there is a remote possibility that the Fund will be default.”

The case study discusses how a non-traditional Fund compete with the traditional ones during which time local investors prefer to maintain their risk-averse approach in their investment pattern. When originally introduced, regulatory agencies such as Indonesian Stock Exchange (BEI), Bank Indonesia and Bapepam LK are very confident that the product will boost the market because the international support given by    the Executives Meeting of East Asia and Pacific Central Banks, or EMEAP. EMAP consists of 11 (eleven) central bank and monetary authority: the Bank of Japan, Bank of China, Bank of Korea, The Reserve Bank of Australia, The Reserve Bank of New Zealand, Hong Kong Monetary Authority, Monetary Authority of Indonesia, Bank of Thailand, Bangko Sentral ng Pilipinas, State Bank of Malaysia, and Bank Indonesia. Whether the support shown by the official regulatory agencies, will in fact, boost the total investment in the product is still uncertain.

Bahana TCW Investment Management is really in a dillematic position when decided to manage the unique fund given a variety of profitable product being offered by the market.

There are several reasons why PT. Elnusa launched its IPO. The main reason seems to be the fact that Elnusa wants to expand its business into marine seismic  acquisition, deep well drilling, and testing barge which requires huge capital expenditures especially in equipment procurement. The story reveals the pros and cons arguments around the IPO decision. One could argue, why has to be the IPO and not bond issuance? What is the advantages and disadvantages of IPO and why it is preferable compared to bond issuance. How will the IPO revenue be allocated among the main activities asking for financial support and  what is the allocation basis. One main pre-requisite for Elnusa IPO decision is its historic financial performance as shown by  the financial statements as well as measured by liquidity, solvability and profitability ratios. It is also worth to be noted that before the IPO, Elnusa merged three of its subsidiaries and consolidated several subsidiaries in order to create  Elnusa as the “operational holding” rather than the “strategic holding” . The decision for IPO by Elnusa cannot be separated from the industry environment and prospect where Elnusa is operating. SWOT analysis is used to identify and assess both internal and external factors influencing company present and future performance. The case study concludes that IPO decision has been successful in strengthening Elnusa capital structure to support the revenue-generating activities of core business.

It was 1996, when Mr. Budiardjo Tek, the President Director of PT Sierad Produce Tbk (“Sierad Produce / Sierad / The Company”) proudly presented the Company’s achievement, “I am pleased to report that 1996, our first year as a publicly held company, proved to be a highly successful one, with outstanding financial performance recorded across the board. Net revenues for the year amounted to Rp. 454.4 billion (or equal to USD 192.3 million), income from operations totaled Rp. 44.0 billion (or equal to USD 18.6 million), and net income was Rp. 27.1 billion (or equal to USD 11.5 million). With expansion projects now coming on-stream, our poultry feed operation is growing tremendously. Expansion of our feedmill, for example, will result in a tripling of capacity and will allow us to achieve significant economies of scale.”

Not too soon after the situation changed. The Asian monetary crisis beginning in 1997 was sudden and unforeseen. It had been catastrophic for many businesses. All poultry operators – without exception and including the Company – embarked on expansion before the economic crisis in order to take advantage of the excellent prospects of the industry.  These expansions were funded in part by new equity issues in the capital markets and in part, through cheap and readily available financing offered by offshore financial institutions. However, due to the profound and lingering effect of the crisis, the consumer purchasing power deteriorated. Rupiah depreciated from its normal rate of Rp. 2.500,- to Rp. 4,500 at year end 1997, soaring to Rp. 17,000 in January 1998 and levelling off at Rp. 10,000 – Rp. 12,000 with much volatility towards end of 1998. At the same time, the poultry industry’s cost of production went up several folds. “More than 80% of feed’s raw materials were imported and therefore, the industry is heavily import-dependent”, said Albert Sitorus, member of Sierad’s management team. Large poultry operators like the Company found themselves with new production facilities, large foreign currency debts, a Rupiah-based revenue stream and worse, over a 50% decline in consumer poultry consumption during the worst period. It was inevitable that the Company would go into default.  It was only a matter of time. The Company was unable to pay the USD 313 million debt, which actually was only less than 2 times of its annual revenue before the crisis.

On 16 December 2002, the Government of the Republic of Indonesia ("Government") declared Singapore Technologies Telemedia Pte., Ltd. ("STT") the winning bidder for the divestment of 41.9% shares of the Government in PT Indonesian Satellite Corporation Tbk. ("Indosat").  STT utilized its subsidiary Indonesian Corporation Limited ("ICL") to purchase the shares.  This divestment decision attracted various reactions from the public as well as various institutions within the government.

This divestment process had been long considered by State Minister for the State Owned Enterprise ("Meneg BUMN") a position which was then held by Mr. Laksamana Sukardi, the Minister of Finance ("MoF"), Mr. Boediono, the Indonesian Banking Restructuring Agency ("IBRA") and the Capital Market Supervisory Board ("Bapepam").  To support the divestment process, the Government engaged PT Danareksa Sekuritas and Credit Suisse First Boston ("CSFB") as coordinators for the sale of the shares, particularly as the financial advisor.

One of the reasons the Government decided to dispose of its shares in Indosat was to increase the level of competitiveness of Indosat in the telecommunication sector in Indonesia.  Another reason was Indosat’s failure to achieve optimum results despite previous efforts to enhance its performance.  However, the main reason was that the MoF had planned to utilize the funds generated by the privatization of State Owned Enterprises (including proceeds from Indosat divestment process) to buy back Recapitulation Bonds from a number of banks.