(Bloomberg) — Its stock price resembles that of an emerging-market penny stock: a 1,200% rise 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 power producer controlled by one of the country’s richest tycoons.
Barito’s wild swings – the most extreme among global companies valued at $50 billion or more based on 30-day volatility – have confounded professional analysts, fueled feverish trading among retail investors and challenged regulators’ attempts to bring more order to an increasingly volatile market.
The episode is a reminder to international money managers of the lack of transparency that sometimes accompanies investing in Indonesia’s $735 billion stock market. Barito has said little that might explain why his shares have fluctuated so much, while authorities have refrained from disclosing details of trading restrictions put in place in late May that critics say have exacerbated the stock’s volatility.
Trade restrictions “meant to protect investors have ironically undermined overall investor confidence,” said Mohit Mirpuri, fund manager at SGMC Capital Pte. “In the short term, this is likely to deter risk-averse investors, especially if it is seen as a sign of broader market instability or regulatory challenges.”
The controversy dates back to last June, when the exchange launched a new watchlist for volatile and distressed companies. The list was designed by regulators as a silver bullet to restore credibility to Southeast Asia’s largest stock market, which had been suffering from high volatility and dwindling liquidity. Under the exchange’s rules, a company can be added to the watchlist for several reasons, including zero revenue growth, low liquidity and trading below Rs 51 for three months.
In March, the exchange stepped up the pressure on these companies by implementing a full-call auction system on all companies on the watch list. This mechanism matches buy and sell orders, as major exchanges around the world typically do at the start and end of trading. However, instead of switching to continuous trading, the auction would be implemented four or five times a day.
At first, these restrictions were not met with much enthusiasm. Until the Indonesian Stock Exchange listed Barito Renewables in late May, without providing any specific justification other than citing the “significant increase” in the share price.
The market’s reaction was swift. Over the next two weeks, the company’s shares fell by nearly half, wiping out some 700 trillion rupiah ($43 billion) and dragging down the Jakarta Stock Exchange’s benchmark composite index by nearly 5%. The gyrations prompted FTSE Russell to delay the company’s inclusion in its large-cap index, which would have led to further foreign inflows.
The inclusion also angered local traders, who argued it undermined market stability and reduced returns. In an act of defiance, they sent dozens of funeral flower arrangements to the exchange office, urging death at the auction. A Change.org petition signed by 16,000 users calls for its revocation.
The exchange has defended the restrictions, arguing that they have helped increase price discovery for many penny stocks and boost liquidity. The Financial Services Authority’s capital market supervisor, Inarno Djajadi, said the regulator was comparing its policies to similar rules in other countries.
Billionaire owner Prajogo Pangestu has since bought some 48 million more shares, which have surged 1,342% since their October IPO, one of the country’s most anticipated listings. The company’s secretary general, Merly, said in a statement that Prajogo’s increased stake reflected his confidence in the company’s prospects.
In late May, after a public outcry, the regulator removed Barito Renewables from the watchlist without further explanation. Exchange chief Jeffrey Hendrik told reporters that the removal of a number of stocks was due to improved liquidity.
Related: Mysterious 1,000% stock market gains baffle traders in Indonesia
Barito Renewables has only one analyst rating, according to Bloomberg data. The company is majority-owned by PT Barito Pacific, which is majority-owned by Prajogo. Its stock price is 637 times trailing 12-month earnings, more than three times that of Adani Green Energy Ltd. Earlier this year, the Indonesian stock exchange investigated whether there had been stock manipulation in another company owned by Prajogo, which had surged more than 6,000% since listing.
Investors are concerned that the watchlist entry could create a knee-jerk reaction among traders. Four MNC Group companies were placed on the watchlist in late May, including PT MNC Asia Holding. The latter’s stock fell 60% in the two weeks following the placement. Shares of restaurant operator PT Sari Kreasi Boga fell nearly 70% in the three weeks following its inclusion in the same month.
“Once the shares go into the (full auction), it’s like being in a dark prison, so people panic and sell,” said Hasan Zein Mahmud, a former exchange director and investor in Sari Kreasi.
Analysts say the uncertainty will accelerate the exodus of foreign capital. Macroeconomic concerns over fiscal uncertainty and a weak rupee have already prompted Morgan Stanley and HSBC Holdings Plc to downgrade the country’s stocks last month.
“The (full call auction) rule could be beneficial for smaller stocks. But for larger ones like Barito, it could actually deter investors, especially foreign funds, given the less transparent and market-driven process,” said Sufianti, an analyst at Bloomberg Intelligence.
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