Public Mergers and Acquisitions in Indonesia: Regulatory Restrictions
SSEK Legal Consultants partner Fahrul S. Yusuf and Michael S. Carl, a senior foreign legal advisor at the firm, have contributed the Indonesia chapter of the new Practical Law global guide to Public Mergers and Acquisitions. SSEK is one of the top M&A law firms in Indonesia, as ranked by leading independent legal publications including Chambers & Partners, IFLR1000, Legal 500 and Asia Law & Practice. SSEK was recognized as a Tier 1 M&A law firm in the 2015 M&A Rankings from Asian Legal Business, one of only four firms in Indonesia to receive the Tier 1 ranking.
The following is an excerpt from Public Mergers and Acquisitions in Indonesia.
Are any other regulatory approvals required, such as merger control and banking? If so, what is the effect of obtaining these approvals on the public offer timetable?
Specific regulatory approvals prior to the takeover may be required subject to the target company's specific line of business (for example, banks and non-bank financial institutions will require approval from the Financial Services Authority (OJK) before the takeover). In addition, the Indonesian Competition Law prohibits the merger or consolidation of business entities or an acquisition of shares that may result in monopolistic practices and/or unfair business competition.
The Competition Law requires that a filing be made to the Competition Supervisory Commission (KPPU) for the merger or consolidation of business entities and in the acquisition of shares resulting in control if the resulting asset value and/or sales value exceed certain thresholds. This filing must be made to the KPPU no later than 30 business days after the effective date of the merger, consolidation or acquisition. The surviving company or the acquiring company has the obligation to file.
A filing to the KPPU must be made if the merger results in either:
- A combined local asset value of more than IDR 2.5 trillion (about US$229 million) (or if the entities are banks: IDR 20 trillion (about US$2.07 billion)).
- A combined local turnover of more than IDR 5 trillion (about US$518 million).
These minimum thresholds are calculated based on the total asset value and/or sales value of:
- The business entity resulting from the merger, or in the case of an acquisition, the acquiring business entity and the acquired business entity.
- The business entity or entities that control or are controlled (either directly or indirectly) by the business entity resulting from the merger or consolidation, or the acquiring business entity and the acquired business entity.
Guidelines issued by the KPPU clarify that the asset value and/or sales value of any sister companies must be included. Therefore, the Indonesian turnover and assets of any subsidiary companies controlled by the ultimate parent are included in the determination of whether filing thresholds are satisfied.
Are there restrictions on the foreign ownership of shares (generally and/or in specific sectors)? If so, what approvals are required for foreign ownership and from whom are they obtained?
Certain types of businesses in Indonesia are subject to foreign ownership limits. The government issues and periodically amends the Negative Investment List, which lists most business sectors with restrictions or prohibitions on foreign investment.
However, the Negative Investment List is not generally deemed to apply to investment through a capital market transaction (that is, investment through the purchase of shares in a public company). While it is clear that the Negative Investment List does not apply to portfolio investors in public companies, there are instances in which the regulator can still deem it to apply to controlling shareholders of public companies whose names are listed in the companies' articles of association. In some sectors, further restrictions on foreign ownership apply beyond those that are set out in the Negative Investment List (for example, in relation to banking and mining). However, foreign ownership restrictions are not necessarily consistently enforced in Indonesia, and it is advisable to consult with legal counsel before considering an acquisition of a public company in Indonesia.
Are there any restrictions on repatriation of profits or exchange control rules for foreign companies?
There are no restrictions on the repatriation of corporate profits or exchange control rules restricting the remittance of non-rupiah denominated funds. However, there is a reporting obligation by financial institutions to the Indonesian central bank of foreign exchange transactions in Indonesia. Banks require customers making transfers of more than US$10,000 to disclose:
- General information on the residency status of the beneficiary.
- The relationship between the transferor and the beneficiary.
- The purpose of the transfer.
Following the announcement of the offer, are there any restrictions or disclosure requirements imposed on persons (whether or not parties to the bid or their associates) who deal in securities of the parties to the bid?
There are no restrictions or disclosure requirements imposed on persons apart from the general disclosure requirements.
Are there any proposals for the reform of takeover regulation in your jurisdiction?
A draft proposal to amend takeover regulations is currently being circulated to concerned parties for their review. The authors understand that the Financial Services Authority is intending to enact a new regulation this year. The most significant change in the draft amendment being circulated is that new controllers would be limited to the acquisition of 80% of shares in public companies. Under this amendment, if the 80% threshold is breached, a new controller will not be allowed to conduct a Mandatory Tender Offer.
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