The Indonesian Financial Services Authority ("OJK") has issued Regulation No. 32/POJK.04/2015 regarding Capital Increase with Pre-emptive Rights (the "New Rights Issue Regulation") effective starting from 22 December 2015.
The New Rights Issue Regulation replaces and revokes Regulation No. IX.D.1, attachment of the Decree of the Chairman of the Capital Market Supervisory Board No. KEP-26/PM/2003, dated 17 July 2003 on Pre-Emptive Rights ("Regulation No. IX.D.1"); and Regulation No IX.D.2, attachment of the Decree of the Chairman of the Capital Market Supervisory Board No. KEP-08/PM/2000, dated 13 March 2000 concerning Form and Content of Registration Statements for Pre-Emptive Rights Guidelines ("Regulation No. IX.D.2" and together with Regulation No.IX.D.1, the "Old Regulations").
The New Rights Issue Regulation provides that public companies that have submitted agendas of their general meeting of shareholders to approve their rights issues to the OJK before 22 December 2015 will remain subject to the Old Regulations.
Key Changes / New Provisions
Some of the key changes and new provisions introduced under the New Rights Issue Regulation are as follows:
1. The approval from the General Meeting of Shareholders ("GMS") for the rights issue must be obtained prior to filing the registration statement to the OJK.
Under the Old Regulations, the GMS approval can be obtained after the Company receive the effectiveness statement from the OJK. The New Rights Issue Regulation requires the registration statement to be filed with the OJK after the GMS approval is obtained. The filing of the registration statement can be done any time after the GMS is held, but the period between the GMS and the effectiveness of the registration statement date shall not exceed 12 (twelve) months period.
The New Rights Issue Regulation also requires that public companies to re-call a GMS to approve any changes to the matters already approved by the GMS before a registration statement is filed.
How does this affect you?
(a) Public companies will have more flexibility in the preparation process including scheduling the GMS. Under the Old Regulations, public companies can only hold the GMS after the OJK issued the effective statement which may be uncertain in some situations.
(b) Although public companies may have more flexibility to determine the final structure even after the GMS approval:
(i) Public companies will have to disclose the GMS announcement along with general information of the rights issue plan (see point 2 below) and there are certain information required to be disclosed at this stage which makes the structure of the rights issue will still need to be well planned.
(ii) Public companies may need to ensure that the final structure does not materially different with what have been disclosed in the GMS announcement and must ensure that the GMS resolution is flexible enough to anticipate any changes in the final structure.
(c) The completion of rights issue will still be subject to the effectiveness of the registration statement although the GMS has approved the rights issue.
(d) This requirement will likely lengthen the overall rights issue process because the GMS process must be completed separately before the registration statement process. Public companies will therefore need to take into account the GMS process in setting up the overall timetable.
2. A general information regarding the proposed rights issue must be disclosed at the latest on the same day with the GMS announcement (which is before the GMS), while the abridged prospectus must be disclosed at the same time with the filing of the registration statement (which is after the GMS).
Unlike the Old Regulations which required an abridged prospectus to be disclosed at the GMS announcement, information that must be disclosed at the GMS announcement under the New Rights Issue Regulation is quite broad, which must cover at least (i) the maximum number of shares to be issued, (ii) the estimated rights issue implementation period (if can be determined), (iii) an analysis of the impact of the capital increase on the financial conditions of the company and the shareholders, (iv) a general indicative use of proceed, and (v) information on the form of payment if other than cash.
A more detailed information on the rights issue must be disclosed later on the day the registration statement is filed with the OJK, which can only be done after the GMS approval is obtained. This disclosure must also include the information on the GMS date and resolution approving the rights issue.
How does this affect you?
The minimum information required to be disclosed on the GMS announcement is not as extensive as an abridged prospectus (which will only be announced on the registration statement date after the GMS). Although public companies may have more flexibility to determine the final structure even after the GMS has approved on the basis of such a limited information, there are certain information required to be disclosed in the GMS announcement which makes the structure of the rights issue will still need to be well planned. In addition, public companies may need to ensure that the final structure does not materially different with what have been disclosed in the GMS announcement and must ensure that the resolution of the GMS is flexible enough to anticipate any changes in the final structure.
3. Submission of a statement letter on fund sufficiency and proof of fund sufficiency by each of the standby purchaser and the principal shareholder that undertakes to subscribe for the new shares is now clearly required.
The Old Regulations did not specifically require the standby purchaser and the principal shareholder to submit a statement letter on fund sufficiency and proof of fund sufficiency, and the New Rights Issue Regulation clearly requires these to be submitted to the OJK as part of the registration statement documents.
How does this affect you?
The standby purchaser and principal shareholders who undertake to subscribe for the new shares must prepare the statement letters and proof of fund sufficiency since the first filing of the registration statement as these will be part of the documents to be submitted. Under the Old Regulations, these were not specifically required to be submitted in the first filing of the registration statement although in practice the OJK had frequently asked for these documents during the review process.
4. Settlement of the new shares in the form of other than cash and set-off mechanism is now clearly allowed
The Old Regulations did not specifically regulate non-cash settlement for the new shares, but under the New Rights Issue Regulation it is now clearly allowed with certain requirements.
For non-cash settlements, the object must directly related to the use of proceeds, and the company must appoint an independent appraiser to determine the fair value of such form of settlement and the fairness of the settlement in the form of other than cash.
For set-off of outstanding receivables, the receivables to be set-off must have been clearly described in the latest audited financial report of the company, but no independent appraisal is required for this purpose.
How does this affect you?
These provisions provide more clarity that non-capital injection is allowed for rights issues which would give more flexibility to public companies in structuring the rights issue and would also support various structure of acquisition of public companies through a rights issue.
This note is intended to give only a general overview. There are more new provisions regulated under the New Rights Issue Regulation. Please do not hesitate to contact us if you need a more detailed advice, or have specific questions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.