Indonesia’s richest business leaders have taken a big hit after MSCI, a global index provider, raised doubts about how fairly some Indonesian companies are valued, according to a report by Bloomberg. The warning sparked heavy selling in the stock market and erased nearly $22 billion from the combined wealth of the country’s top tycoons.
The biggest loser was Prajogo Pangestu, Indonesia’s richest man. His wealth dropped by about $9 billion after shares of his energy and mining companies fell sharply. His net worth is now estimated at around $31 billion, and overall, he has lost close to $15 billion so far this year, according to the Bloomberg Billionaires Index.
Sharp fall in key company shares
Pangestu owns a majority stake in energy company Barito Pacific and coal and gold miner Petrindo Jaya Kreasi. Shares of both companies fell by more than 12% in a single trading session, the report mentioned.
His family office said it is reviewing MSCI’s comments and will continue discussions with all concerned parties. “We are reviewing MSCI’s recent statement in the normal course and will continue to engage constructively with all relevant stakeholders,” Bloomberg quoted Nancy Tabardel, managing director, Pangestu’s family office, as saying.
What causes the sell-off?
The sell-off followed an MSCI report that questioned Indonesia’s shareholder disclosure rules. The report said investors worry that these rules allow unclear ownership structures, which could raise the risk of unfair or improper trading.
MSCI also highlighted long-standing concerns about companies where one person or a small group controls most of the shares. Such concentrated ownership is common in Indonesia and other parts of Asia and it has helped create some of the region’s largest personal fortunes.
Because of these issues, MSCI said it would put some planned index changes on hold and warned that further action could be taken if the problems are not fixed by May. This warning unsettled investors.
Low free float raises red flags
Indonesian billionaires on the Bloomberg list hold stakes in their companies ranging from small amounts to as much as 92.5%. In Indonesia, listed companies are required to have a minimum public shareholding, or free float, of only 7.5%.
Investors have long urged Indonesia, which has Southeast Asia’s largest stock market, to improve its disclosure and reporting rules. Many listed companies are tightly controlled, with only a small portion of shares available for public trading. This often leads to sudden and hard-to-explain price swings, keeping concerns about possible market manipulation alive.