If a bidder in Indonesia decides to build a stake in a target, they can do so either through a direct increase in shareholding or by way of derivatives. The former is more common, although the latter is becoming increasingly frequent due to commercial or tax reasons.
Material Shareholding Disclosure Threshold
In general, the Ministry of Law and Human Rights maintains a registry that includes corporate information on all limited liability companies in Indonesia, including their shareholding information. Any change in shareholding composition will need to be acknowledged by the Ministry and recorded in the registry, which is accessible to the public. A buyer intending to acquire a controlling stake in a non-public company will also need to announce the transaction publicly through nationally circulated newspapers before the buyer and the seller can close the transaction.
A disclosure obligation also arises concerning an interest in securities when an investor reaches 5% of outstanding shares in an Indonesian public company. Once a shareholder reaches the 5% threshold, the shareholder must report to the OJK on any transfer of shares, provided the ownership is still above 5%.
If the shareholding ownership drops below 5%, the shareholder must still report the decrease of ownership (eg, the ownership changing from more than 5% to less than 5%), after which no reporting is necessary for any transfer of shares (provided the ownership remains less than 5%).
Also, rules from the Indonesia Stock Exchange (IDX) require companies listed on the IDX to make public any information relating to investors owning 5% or more of the shares in that public company (available on the IDX website). The public companies must make the disclosure no later than ten calendar days after the obligation arises, because there will have been an acquisition or disposition of shares.
The IDX identifies shareholders owning more than 5% of the shares in a public company on its website.
Hurdles to Stakebuilding
Any increase or change in shareholding in most non-public companies requires shareholder approval. The Company Law (Law No. 40 of 2007) sets out the minimum quorum and voting requirements for shareholders' meetings. However, the articles of association can specify higher thresholds, which will prevail over those specified in Indonesian company law.
Obtaining shareholder approval may prove difficult, although not always, particularly if a company consists of many shareholders and a quorum is difficult to achieve. Other difficulties may include obtaining the license or approval from the relevant government authority for including a foreign element in the shareholding composition, which is particularly true for certain industries such as the payment industry.
Shareholder approval is generally not required for an increase in shareholding in public companies, unless the increase is made through a rights subscription. In general, obtaining approval from the shareholders in a public company is more challenging, not only from a procedural perspective but also in the gathering of the necessary quorum, in which case securing a commitment from the incumbent controller of the company is almost always necessary.
Dealings in Derivatives
Many acquisition transactions are preceded by an agreement involving derivatives, such as a subscription agreement to convertible or exchangeable bonds, or a call/put option agreement. These are allowed under Indonesian law and there are various reasons for pursuing such agreements. The most notable reason is tax efficiency, while another is security (eg, to secure repayment in a loan arrangement).
There is no disclosure requirement when the stakebuilding is carried out using derivatives (eg, convertible bonds, call/put options). The post-merger report does not apply either. The disclosure/report obligation will arise only on the exercise/conversion of the derivatives into shares in the company if the relevant thresholds are met.
As previously mentioned, a buyer intending to acquire a controlling stake in a non-public company will need to announce the transaction publicly through nationally circulated newspapers before the buyer and the seller can close the transaction. However, in general, there is no requirement for the buyer to disclose their intention regarding control of the company.
For heavily regulated industries such as banking, a strategic investor who intends to acquire and control a particular bank must disclose their intention regarding the direction of the bank's business, going forward, during their "fit and proper" test to become the controlling shareholder of the bank.
For takeovers of public companies using the voluntary tender offer (VTO) method, a bidder must also make known their intention for the target company, ie, whether they wish to delist the company from the stock exchange and make it a private company.
This first appeared in the Chambers Corporate M&A 2020 global guide, published by Chambers and Partners. You can find the full chapter at https://practiceguides.chambers.com/practice-guides/corporate-ma-2020/indonesia.
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