As part of efforts to strengthen market liquidity and transparency in Indonesia’s capital market, the Indonesia Stock Exchange (IDX) is currently reviewing adjustments to the minimum free float requirement for prospective issuers.
Previously, the free float threshold was determined based on a company’s equity value. The new proposal would instead use market capitalization, providing a more accurate reflection of a company’s condition at the time of its Initial Public Offering (IPO). So, how might this affect companies planning to go public?
What Is Free Float and Why Does It Matter for the Capital Market?
According to Regulation No. I-A, free float refers to the number of shares held by shareholders owning less than 5% of the company’s total listed shares, excluding shares owned by members of the Board of Commissioners or Directors, as well as treasury shares repurchased by the company. This ratio serves as an important indicator of a stock’s liquidity level. The greater the number of shares available for public trading, the higher the potential trading activity on the exchange.
In the context of market governance, free float helps maintain a healthy balance between company ownership and public interest. BEI believes that too low a public ownership ratio can lead to price volatility and reduced market transparency.
Therefore, increasing the minimum free float requirement is seen as essential to encourage more active trading and ensure stock prices better reflect true market value.
From Equity Value to Market Capitalization: What’s Changing?
Until now, the minimum free float requirement has been based on a company’s equity value prior to its IPO. However, this approach is no longer considered relevant since equity size can change significantly after the offering.
To address this, IDX, together with the Financial Services Authority (OJK), is reviewing a new classification system based on market capitalization, to better represent a company’s actual condition upon listing.
The following table shows a comparison between the current rule and the proposed changes being discussed:
Impact on IPO-Bound Companies
This proposed change will have a direct impact on companies preparing for an IPO. For smaller companies, the rule may require allocating a large portion of shares to the public, potentially affecting ownership structure and control.
Meanwhile, for large-cap issuers, the new classification presents an opportunity to enhance market reputation and attract institutional investors by demonstrating stronger stock liquidity.
In light of these potential shifts, preparedness in financial reporting, corporate governance, and investor communication becomes increasingly crucial before entering the IPO stage.
How Moores Rowland Indonesia Can Help
The proposed free float policy adjustments by IDK and OJK are an important signal for companies planning to go public to begin reassessing their ownership structures and internal readiness.
Through its Pre-IPO Advisory Services, Moores Rowland Indonesia helps companies understand the implications of these regulatory developments and design effective strategies to ensure a smooth transition to the public market.
Our services include:
- IPO Readiness Assessment: Evaluating the company’s preparedness to become a public entity, including potential adjustments to the new free float requirements.
- Financial Reporting & Audit Preparedness: Ensuring that financial statements are audit-ready and comply with IFRS/PSAK standards required by capital market regulators.
- Governance & Ownership Structuring: Reviewing corporate governance, shareholder composition, and public ownership to align with best practices and the proposed regulatory changes.
- Valuation Advisory: Providing guidance on how ownership structure adjustments may affect company valuation and investor perception.
With extensive experience in capital market advisory and compliance, Moores Rowland Indonesia supports companies not only in preparing for IPOs but also in anticipating regulatory changes that may influence ownership strategies and public investor access.
Begin your IPO journey with Moores Rowland Indonesia. Contact us today for a free consultation.
