Pertamina’s Sub-holding IPO: Improving Value for Money and Beyond!
Some days ago, the public was shocked by Pertamina’s plan to go on with the initial public offering (IPO) of its sub-holding. The scale was seismic. Pertamina is one of the largest state-owned enterprises in Indonesia. Furthermore, 100% of its shares are in the hands of the Indonesian government. So, this plan reflects a strong wind of change.
However, not all groups are sympathetic to the change. One of the members of Parliament in the Energy Commission, Mufti Anam, rejects this plan. “Majority of employees and ordinary people do not want to see our energy wealth privatized,” he said (Binekasri in jawapos.com, 2020).
Then, Pertamina’s labor union echoed this opinion through legal action. Federasi Serikat Pekerja Pertamina Bersatu (FSPPB) filed the lawsuit due to the decision made by the state enterprises minister, Erick Thohir. Not only one-sided, they see this decision as a danger for labor interest. More than that, it would kickstart a transfer of assets and finances away from the state (Kusuma in finance.detik.com, 2020).
In other words, they are afraid. Scared of the prospect that Pertamina would flog towards private investors. As Genesis’s album title goes, “Selling Pertamina by the Rupiah.” After all, the IPO of state-owned enterprises always rings selling state shares to the mind of Indonesians.
However, this fear is not shocking for many, including to the President Director of Pertamina, Nicke Widyawati. Responding to those voices, she proclaimed her defense. “Privatization is not on our list. We are not going to sell off the state’s shares. So, an IPO would only happen in the sub-holding level,” she stated. Then, she explained that an IPO is only among the many options for funding, such as global bonds, equity partnerships, etc. To initiate an IPO, the corporation needs to accomplish two steps (Thomas at tirto.id, 2020).
The first one is restructuring. In this case, restructuring involves many aspects. Mainly, Pertamina molds five new sub-holdings. These sub-holdings would handle the operational aspects of the business. Next, Pertamina would digitize its administration and centralize its procurement. Lastly, Pertamina would venture into new enterprises.
Those new businesses include developing raw medicine materials with Kimia Farma. Other than that, they are testing new bioenergy fuels. Pertamina would convert Indonesia’s large deposit of gasified coal into Dimethyl Ether (DME). This DME is an alternative to commercial diesel (tribunnews.com, 2020).
The second one is the profitization. The goal is to increase company value after restructuring. Thus, when the company is profitable enough, it would go into an IPO (Thomas at Tirto.id, 2020). Talking about profit, Pertamina had reaped Rp 35,8 trillion worth in net profits (Afriyadi in finance.detik.com, 2020). So, they’re ready for an IPO.
But this IPO is more than about profit or money. It is about creating a sense of direct ownership. “With these sub-holdings, we hoped that all of society could participate in owning Pertamina,” said Basuki Tjahaja Purnama (BTP), the President Commissioner of Pertamina. His statement sent shivers down my spine.
Shivers of amazement, to be exact. One could imagine Margaret Thatcher, the godmother of popular capitalism uttering a similar statement. From this statement, he’s calling for ordinary members of society to own shares of Pertamina. In effect, this ownership would spur a change in corporate culture.
Laidlaw dan Sander (2016:15 and 43) stated that an IPO changes corporate culture towards a more professional direction. Other than that, it also increases pride and minimizes internal information sharing. But this pride comes with a price. Employees and management should change their behavior to maximize shareholders’ value.
If they don’t, then they’re in grave danger. The corporation should disclose its share-price sensitive information beforehand. Furthermore, an IPO of this scale could bring many new retail and institutional investors. These new owners would enforce sub-holdings’ management to strengthen their accountability. Not doing so could cost them precious capital.
We can say that this whole process would push those sub-holdings to maximize value for their shareholders. Moreover, it would nudge them to improve the value for money of Pertamina to the taxpayers. This premise comes from the fact that Pertamina is under the Indonesian government’s custody as a political institution.
Consequently, the explanation above indicates that the IPO of sub-holdings is good. Yes, but only as a first step. Pertamina should step further in this process of restructuring. They should embrace even more radical means to increase ownership participation and value for money. What are those means?
First, bombard the public realm with advertisements about the IPO. Official video releases on its Youtube channel is not enough. Pertamina also should run creative ads on TV, radio, billboards, and various social media. Therefore, members of the public would become conscious of this opportunity and would apply for shares.
Second, these sub-holdings could issue convertible bonds to attract further investment. After all, not everyone likes the high risk that share ownership involves. So, they need an instrument that provides a path to ownership with less risk. Bonds that can become shares can be the best alternative. Calamos (2017:3) said that it combines the return enhancement of stocks and the low-medium risk of fixed income assets. That’s a bullseye.
Third, implement an employee stock ownership plan (ESOP) on each of those sub-holdings. This crusade to create a sense of direct ownership shouldn’t stop here. Accordingly, it must go further towards the sub-holdings’ employees. Why?
Blasi et al. (2013:121–122) explained that ESOP companies survive longer. Hence, this rate of survival is a result of higher employee performance on average. Furthermore, it creates a new “ownership culture” that improves employee commitment, flexibility, and innovative ideas. ESOP would make them possessors of the company, not mere employees.
In conclusion, Pertamina’s plan to do an IPO of its sub-holdings is not going against Indonesia’s interest. It is within our advantage to improve Pertamina’s value for money by increasing its efficiency. But, this IPO is only the first big leap towards a better Pertamina. They should march onward in creating a new sense of ownership and accountability.
As Whitney Houston’s song title goes, this is Pertamina’s one moment in time. Everyone would reap the benefits in the long-run. Let’s not waste it with short-run grumblings.
Oleh: Rionanda Dhamma Putra | Staff Kajian Kanopi FEB UI 2020 | Ilmu Ekonomi 2019
REFERENCES
Afriyadi, Achmad Dwi. (2020, June 18). Pertamina Cetak Laba Rp 35 T di 2019. https://finance.detik.com/energi/d-5059360/pertamina-cetak-laba-rp-35-t-di-2019.
Binekasri, Romys. (2020, June 22). Legislator PDIP Tolak Rencana Erick IPO-kan Anak Usaha Pertamina. https://www.jawapos.com/ekonomi/energi/22/06/2020/legislator-pdip-tolak-rencana-erick-ipo-kan-anak-usaha-pertamina/.
Blasi, Joseph, Dan Weltmann, and Douglas Kruse. (2013). Firm survival and performance in privately held ESOP companies. https://www.researchgate.net/publication/286471693_Firm_survival_and_performance_in_privately_held_ESOP_companies.
Kusuma, Hendra. (2020, July 25). Dinilai Absurd, Ini Gugatan Serikat Pekerja Pertamina ke Erick Thohir. https://finance.detik.com/berita-ekonomi-bisnis/d-5107607/dinilai-absurd-ini-gugatan-serikat-pekerja-pertamina-ke-erick-thohir.
Laidlaw, Clara and C. Sander. (2016). How Initial Public Offerings Change Management Control System Packages. https://www.diva-portal.org/smash/get/diva2:903460/FULLTEXT01.pdf.
Thomas, Vincent Fabian. (2020, June 29). Dirut Pertamina Bantah Soal Isu Privatisasi Lewat Subholding Migas. https://tirto.id/dirut-pertamina-bantah-soal-isu-privatisasi-lewat-subholding-migas-fMhi.
