(March 27): A looming MSCI Inc decision over Indonesia’s market status is highlighting the challenge regulators face to address opaque ownership structures and poor disclosures by the nation’s biggest companies.
Regulators are fast-tracking reforms, including more transparency on affiliated shareholders, as part of a broader effort to make Indonesia more attractive to global investors. The changes are also meant to placate MSCI, which in January warned of a possible downgrade from emerging market status.
The task has exposed a deeper dilemma in Indonesia: regulators are trying to identify ultimate ownership and stakes in a system where tycoons routinely hide behind a web of related parties and affiliates to avoid scrutiny. The clash is pitting understaffed regulators with a patchy track record against powerful elites who have used that system to dominate large parts of Southeast Asia’s largest economy.
Whether regulators succeed in dismantling that framework will determine the value of Indonesian assets in global portfolios for years to come. The biggest risk, investors say, is executing the reforms. Papering over problems or overdoing it may lead to a downward spiral in confidence and financial assets.
“It would be difficult for the Indonesian government to enact all the changes in time, to convince the inside holders of these families to give up shares and you gotta convince someone to buy the shares,” said Warren Chiang, a portfolio manager at Grantham Mayo Van Otterloo & Co.
While the changes are likely positive in the long term, the road ahead “would be relatively painful”, he added.
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The measures date back to earlier this year when MSCI shocked the market by flagging concerns over investability, particularly the limited number of shares available for trading known as free float. The news sent markets reeling, and regulators quickly pledged to double minimum float levels to 15% as well as mandate greater disclosures ahead of MSCI’s May decision. Final regulations are set to be published this month.
At the heart of the problem is a market long dominated by family-owned conglomerates that operate dozens of listed and private entities from mining and tobacco to petrochemicals. Control is typically maintained through relatives and related parties, which helps retain influence but keeps the free float low.
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The resulting concentration in the market is significant. The top 20 largest tycoon-linked companies on the Jakarta Composite Index make up nearly 43% of the weighting, including PT Bank Central Asia and PT Bayan Resources, according to PT Trimegah Sekuritas Indonesia data from June 2025. They also make up about half of the MSCI Indonesia Index.
Indonesia’s Financial Services Authority said it is committed to implement reforms “boldly and ambitiously” with the support of the government, according to Hasan Fawzi, head of capital market supervision. The stock exchange’s listing director, I Gede Nyoman Yetna, said listed companies are responsible for ensuring the accuracy of their disclosures, adding that regulators can require revisions or impose sanctions where necessary.
PT MNC Vision Networks illustrates the challenge ahead. As of February, the broadcaster reported a free float of 36.7%, with parent PT Global Mediacom disclosed as the sole shareholder holding more than 5% with a 63.24% stake.
Indonesia Central Securities Depository data from February, meanwhile, shows Global Mediacom with a 62.77% stake in MNC Vision Networks and another MNC Group entity, PT Infokom Elektrindo, holding a 2.57% stake. This would imply that the actual free float is lower than the company’s stated figure.
In addition, the same depository data shows more than 6% of the company is owned by UOB Kay Hian (Hong Kong) Ltd, which is not disclosed in MNC Vision Networks’s own filing.
The ownership stakes are the kind of paper trail that regulators will have to wade through in assessing the full picture. MNC Vision Networks, Global Mediacom, MNC Group, Infokom Elektrindo and UOB Kay Hian did not respond to a request for comment.
“Control, especially among private conglomerates, is often exercised informally through family and group relationships that traditional ownership tests struggle to capture,” said Gary Tan, a portfolio manager at Allspring Global Investments.
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One reason for this discrepancy is that under Indonesia’s rules, any stock holding below 5% is classified as free float, even if they are held long term. The widespread use of nominees — dedicated third parties that hold shares on behalf of others — further muddies the picture. Such common practice creates the appearance of free float and even the illusion of successful IPOs.
Regulators have also created the problem of work overload. Brokers are being asked to classify each of their clients into 28 categories and submit paperwork for review. One market participant at a Singapore-based global multi-family office with holdings in several Indonesian companies said, on condition of anonymity as the matters were private, that at least three Indonesian brokers have sought help to ensure accounts are correctly classified.
New rules that force companies to disclose affiliations to shareholders in what’s known as the ultimate beneficial owner is also a challenge as enforcement requires being able to track a vast network of businesses outside of Indonesia.
Even so, some investors say the direction of travel matters just as much as the execution. If regulators can deliver, investors say the upside could be significant particularly with the benchmark index trading at less than 12 times forward earnings — well below its five-year average.
“If the right things happen and valuations are very low, we can see a lot of shareholder value unlocked,” said Joshua Crabb, the head of Asia Pacific equities at Robeco Hong Kong Ltd.
It’s not that regulators haven’t tried to intervene before. In 2024, they imposed trading restrictions on its biggest stock PT Barito Renewables Energy over volatility concerns, but a subsequent market rout and industry backlash forced them to backtrack. This time around, the stakes are far higher, as regulators must balance restoring investor confidence without over-regulating the industry.
In 2018, Indonesia introduced rules requiring companies disclose ultimate beneficial owners as part of an anti-money laundering effort. Yet a 2022 report from governance organisation Extractive Industries Transparency Initiative showed that only a minority of companies had complied, despite the legal mandate.
Compliance needs are rising disproportionately to actual resources. The employee count at Indonesia’s stock exchange grew a compound 2.3% annually over the six years through 2024, based on annual reports. Similar data is not available for the regulator, OJK. Still, a World Bank technical note from 2024 said “OJK’s resources have not increased in line with issuances and supervised companies.”
Ana Isabel Gonzalez Encinas, group chief investment officer at Farringdon Asset Management, is among investors taking notice. Her firm started selling Indonesian stocks last year after being long-term buyers. Her concern is whether regulators can manage political frictions like entrenched power imbalances to persuade global investors that the legal framework in capital markets is clear and fair.
“If the broader structure is built like a house of cards, a small shock, policy, confidence, ownership questions, can travel through everything,” she said.
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