Indonesia accelerates market reforms after MSCI downgrade warning

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Indonesia market reforms after MSCI warning

Highlights

Indonesian authorities accelerated capital market reforms in response to October's MSCI downgrade warning, focusing on free float, ownership disclosure, and enforcement.
Government plans major privatisations in 2025, starting with airports, seaports, and healthcare IPOs or private placements to attract increased private capital.
Danantara sovereign wealth fund targets over $14 billion in investments next year, considers raising international allocation to 40%, and may issue more debt after $1.5 billion Eurobond debut.

Reforms gather pace as MSCI reviews market status

As reported by Reuters, Indonesian authorities are increasing efforts to tackle issues flagged by MSCI, including opaque share ownership, suspected coordinated trading, limited free float and concentrated stocks. Investment Minister Rosan Roeslani said progress has been made on free float and on disclosing holdings above 1%, although enforcement still needs to improve.

MSCI froze some index changes and warned in October that Southeast Asia's largest economy could be moved to standalone market status from emerging-market status. That warning triggered the sharpest one-day fall in Indonesian stocks in 28 years and raised the risk of investor outflows from funds that track MSCI indexes.

Rosan said the reform drive began before the MSCI warning but has since been significantly intensified. He added that Indonesian authorities are meeting regularly with MSCI as they continue efforts to strengthen the capital market framework.

Privatisation plans and Danantara expansion

Alongside the market overhaul, the government plans to begin divesting stakes in state-owned entities next year through IPOs or private placements. Rosan said airports, seaports and healthcare assets are likely to be first, as those sectors have attracted the strongest investor interest.

He said the state could pursue privatisation at the holding level, the operational level, or both, but did not provide further detail. The broader strategy supports Indonesia's effort to draw more private capital into state assets.

Rosan, who also heads Danantara, said the sovereign wealth fund plans to open offices in New York and Hong Kong to deepen investor access and explore operating opportunities. The fund also plans a Saudi office after buying land and hotels in Mecca to serve Indonesians taking part in the annual Hajj pilgrimage.

Danantara's investments next year could exceed this year's estimated $14 billion as it looks for under-pressure and undervalued assets. Rosan said the fund's domestic-to-international investment mix, now about 80% to 20%, could eventually shift to 60% to 40%, and added that Danantara may issue more debt after its debut $1.5 billion Eurobond in June if market conditions and yields are favourable.

Our earlier article on India’s disinvestment programme explained that most proceeds in recent years have come through market-linked routes such as ETFs, public offerings and buybacks, while strategic sales transferring management control have played a much smaller role. It also highlighted how the planned IDBI Bank stake sale stands out in value terms and could materially improve the government’s current-year disinvestment tally after several years of missed targets.

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