On 1 October 2010, the Chairman of the Capital Market and
Financial Institution Supervisory Agency (Bapepam - LK) issued Rule
IX.D.6 concerning the issuance of shares with differing nominal
values (or otherwise known as par value). This rule removes a
common impediment to capital raising for issuers whose shares have
fallen below their current nominal value, and opens up new
restructuring possibilities for debt to equity conversion in
distressed issuers.
Rule IX.D.6 adds welcomed flexibility in Indonesia's capital
market regime. Indonesian company law does not permit shares to be
issued at less than nominal value, and the inability to issue
different classes of shares with lower nominal value was previously
a real obstacle for companies whose share price had fallen below
its nominal value. The new rules will permit such companies to
raise capital for rights issuances.
An issuance of new shares with a different nominal value must meet
the following criteria:
- The issuer's current market share price must be below its nominal value;
- Shares with the same classification but differing nominal values are to have the same rights and entitlements; and
- Shares with the current nominal value of shares cannot be converted into shares with the new nominal value.
The new class of shares will be substantially the same with the
only point of difference being that the older shares with higher
par value may be entitled to a higher distribution on bankruptcy -
likely a sufficiently theoretical nuance to make little difference
to the pricing of the new shares.
The rule will also remove a common impediment to restructuring
indebtedness by means of debt to equity conversion. It has been
common in a private company context to restructure indebtedness
into a significant equity stake in the company by the issuance of
shares with a much lower nominal value - this approach has not been
possible with listed companies until now. Combined with the
flexibility built into Bapepam Rule IX.D.4 to enable distressed
issuers to issue shares in a debt to equity conversion without a
rights issue, there are now a number of effective implementation
options for listed companies seeking to restructure through this
approach.
O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.
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