Private Equity in Indonesia, Market Overview

By Rusmaini Lenggogeni

In Indonesia, information on private equity investments is not readily available. Private equity transactions are usually done through the framework of a merger and acquisition/private investment, as provided in Law No. 40 of 2007 regarding Limited Liability Companies (Company Law).

If the investment target is a public Indonesian company the transaction will also be governed by Law No. 8 of 1995 on Capital Markets (Capital Markets Law), and regulations issued by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan) (OJK), including the Indonesia Stock Exchange (IDX) Rules. In addition, merger and acquisition transactions in Indonesia must comply with Foreign Direct Investment (FDI) regulations under the Negative List and other industry-specific laws.

Fundraising

Private equity in practice obtains funding from:

• Loans.
• Asset securitisation as per the applicable capital market laws.
• Issuing medium-term notes.
• Issuing bonds.
• Subordinated loans.
• Issuing shares.
• Donations and/or grants.

Investment

Private equity investment for the past few years has been largely interested in start-up businesses and has focused on unicorn digital tech companies, logistics companies, and financial technology companies involved in payment services and crowd funding.

Transactions

In general, private equity transactions are governed by the acquisition provisions in the Company Law, and the Capital Markets Law, OJK regulations and the IDX Rules if it involves a public company. There are no specific regulations in Indonesia for private equity transactions.

Exits

In Indonesia, the exit strategy for private equity has revolved around private-to-private selling (for example, trade sales, private placements and so on) for the past few years. Initial public offerings (IPOs) are currently not popular due to the high cost and onerous process.

This first appeared in Private Equity in Indonesia: Market and Regulatory Overview, published by Thomson Reuters Practical Law. You can find the full chapter here.

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