Micro, Small and Medium Enterprises (MSMEs) have long been the backbone of the national economy. However, in recent years, an interesting trend has emerged: several MSMEs have made it to the Initial Public Offering (IPO) stage, a process generally associated with large companies and multinational corporations. An IPO, also known as an initial public offering, is basically a means for a company to go public. This means that a company that was originally private becomes public. The government itself through the Minister of Cooperatives and SMEs (Menkop UKM), Teten Masduki, said that his party together with the Indonesia Stock Exchange (IDX) targeted 10 MSMEs to conduct IPOs until 2024. With this target, Kemenkop UKM together with the IDX will continue to provide assistance to MSMEs that wish to become public companies in the capital market in Indonesia. So, what is meant by IPO itself and its benefits for MSMEs? What are the ways or steps that MSMEs must take in order to reach this stage? Check out the full explanation below.
What is an IPO?
Based on the Financial Services Authority Regulation (POJK) No. 41/POJK.04/2020, IPO or in Indonesian known as a public offering is an offering of securities in the form of debt recognition letters, commercial paper, shares, bonds, evidence of debt, participation units of collective investment contracts, futures contracts on securities and any derivatives of securities carried out by the party conducting the public offering (issuer) to sell securities to the public based on procedures regulated in law. So, an IPO is essentially an initial public offering in the form of securities offering activities to the public conducted by the issuer for the first time. When a company reaches a stage where they want to raise additional funding or provide ownership to public investors, they may choose to list their shares on the stock market (IDX) and conduct an IPO. In the context of MSMEs, an IPO can give them the opportunity to access capital from the capital market. Thus, MSMEs that may have previously had limited resources or access to formal financial markets can sell shares to public investors.
What are the Benefits of IPO for MSMEs?
The objectives of the IPO are basically divided into two, namely financial objectives and non-financial objectives. The financial objectives are to increase the company’s capital, increase opportunities to develop the company, and improve the company’s financial structure. Meanwhile, the non-financial objectives of the IPO are to increase professionalism, reduce internal ownership, market the company, and increase various trust in the company. In the context of MSMEs, there are several reasons why MSMEs might consider stepping into the stock market through an IPO due to the following benefits:
Access to Capital Market
IPOs allow MSMEs to raise new capital from public investors. With these additional funds, they can finance expansion, product innovation, infrastructure upgrades, and broader marketing efforts.
Higher Profile
Through an IPO, MSMEs can raise their profile and brand awareness in a wider market. Where companies or businesses that go public often get attention from the media, financial analysts, and potential consumers.
Liquidity for Owners
MSME owners who have invested considerable time and effort in their businesses can secure liquidity by selling part of their holdings in the stock market.
Recognition and Trust
Through IPOs, MSMEs can gain recognition for their achievements and prove their sustainability and long-term growth potential.
IPO Requirements and Procedures for MSMEs
To conduct an IPO, of course, a company or business must fulfill certain terms and conditions. Where the requirements submitted by the Ministry of Cooperatives and SMEs are as follows:
- Formed as a Limited Liability Company (PT) that has been operating for at least one year;
- Have activities in the form of net assets of at least IDR5 billion from the last year’s audited financial statements;
- Has sold at least 35 percent or IDR 50 million of the issued shares and the number of shareholders is at least 500 parties.
After fulfilling the above requirements, MSME players who will conduct an IPO must find an underwriter to cooperate. The underwriter will then make a valuation proposal and choose the most appropriate securities to conduct an IPO. After that, the company or business can conduct an IPO with the following steps:
Preparation Stage
In this stage, there is planning carried out by the company by conducting a General Meeting of Shareholders (GMS).
Bidding Stage
In this stage, the company publishes a prospectus regarding the feasibility of an IPO by considering long-term calculations, conducts an initial offering, and makes refunds to investors if investors do not get a portion in the IPO conducted.
Recording Stage
At this stage, the company submits a listing application to the IDX in accordance with applicable regulations. The company must pay a listing fee which is then followed by an announcement of the listing of securities on the exchange’s electronic trading board which implies that the securities have begun to be listed and can already be traded. From the explanation above, it can be concluded that not only large companies or multinational corporations can conduct IPOs, but MSMEs can also do so to achieve financial and non-financial benefits.
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However, as with any IPO, MSME IPOs also involve costs and challenges, including intensive preparation, initial share price uncertainty, high transparency requirements, and pressure for consistent business performance after becoming a public company.
KH Contact
So, are your MSMEs ready to list on the stock exchange by conducting an IPO? If yes, it is important to note that a clear business entity status, in this case a PT, can be one of the factors to make it easier for MSMEs to conduct an IPO. This is also supported by the capital of PT which is divided into shares so that it is considered to have higher credibility and make it easier for businesses to conduct IPOs, more trusted by investors, and have wider access to other business activities. For MSMEs who want to establish a PT, please contact Kontrak Hukum. We provide PT establishment including the required legality documents such as deed, SK, NIB, OSS, and NPWP only with prices starting from IDR 2 million! Let’s make your MSME upgrade by visiting the KH Services – Establishment of PT page. If you have consultations about other business needs, you can also contact us at Ask KH or via direct message (DM) to Instagram @kontrakhukum.
