We can learn a lesson about the role of majority shareholders in a public listed company from an Indonesian company with ticker HKMU. As investors, we should be aware of the company’s condition and its ‘healthiness’. We can monitor it through company’s quarter reports or by observing regular updates from the company’s website. This is to minimize the asymmetric information between external shareholders and the insiders of the company. Many cases result from disinformation causing investors to suffer significant losses. This article will highlight why knowing the role of majority shareholders is important for public investors. We take a lesson from a newly listed company 2 years ago and its shares drop to the minimum price in the Indonesian stock market. Subsequently, this article shares some lessons that can be learnt from such a case.
Why do Majority Shareholders matter for the company?
A majority shareholder is an individual or entity that owns and controls more than 50% of an organization’s outstanding stock. As a majority shareholder, an individual or operating entity wields considerable power over the company, particularly the voting rights. Voting shares entitle a shareholder to vote on various corporate matters, including who should serve on the company’s board of directors. Indonesia Stock Exchange (IDX) regulates that an entity should hold at least 5% over total outstanding shares to become a majority shareholder. Companies need majority shareholders to guide employees in achieving the corporate vision and missions. They play significant roles in directing, formulating, and implementing corporate and business strategies.
The case of PT. HK Metals Utama, Tbk (IDX HKMU)
PT. HK Metals Utama Tbk (HKMU) is a metal, steel, and holo iron trade, service, and development company. The company was publicly listed in the IDX on 9 October 2018 with an initial price of Rp350 per share. The average price was above Rp300 until December 2021. The moment majority shareholders started to sell their stocks, about 49% of their ownership, price began to drop. Furthermore, as of 7 February 2022, the majority shareholders, PT Hyam Sukses Abadi (HAS), released its remaining shares 3% of total HKMU outstanding shares. By this corporate action, the public holds 100% of the company’s shares. As a result, the price drops as low as Rp 50, the lowest in the market.
Should investors be worried about the non-existence of majority shareholders? No, Indonesian investors should not be worried about this situation. The Indonesia Stock Exchange (BEI) under its regulation number I-E and Financial Services Authority (OJK) under POJK 11/POJK.04/2017 have set strict rules imposing monthly updates of the company’s shareholders’ composition. This rule provides public information about who are holding existing outstanding shares of the company. Therefore, this transparency will help investors know the composition company’s shareholders.
What lessons investor can learn from the case of IDX HKMU
1) Know the top management of the company before purchasing stocks
The country’s stocks exchange provides public disclosure of the management component of the company. This information is available at the company’s profile. Investors should double-check such details to ensure they make an appropriate investment based on their profile. Many cases have shown several conflicts of interest among top management that adversely affected its performance and its shares’ price.
2) Know who are holding the components of shares and their percentages
Investors can observe this information through finance-related websites, such as yahoo finance, etc. The details will help investors monitor the potential market price of company shares. This is because shareholders owning several percentages can influence the price once they perform transactions in the market. From the case of HKMU we learn that the price can fall gradually from Rp300 to Rp50 because of the sale of majority shareholders.
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