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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