18/01/2010
BAPEPAM-LK'S NEW REGULATIONS ON AFFILIATED TRANSACTIONS AND MATERIAL TRANSACTIONS
After having been in effect for only one year, Regulation No. IX.E.1 of 2008 regarding Affiliated Transactions and Conflict-of-Interest Transactions was replaced by Regulation No. IX.E.1 regarding the same subject matter that was issued recently in November 2009 (“Regulation No. IX.E.1”) by the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK). At the same time, Bapepam-LK also revoked its Regulation No. IX.E.2 of 2001 regarding Material Transactions and Change of Main Business Activities, and replaced it with a new regulation regarding the same subject matter (“Regulation No. IX.E.2”). The following are highlighted features of the two new regulations.
Regulation No. IX.E.1:
- contains clearer and more extensive definitions of the defined terms. The definition for “Affiliated Transaction”, for instance, now reads as follows: “a transaction that is conducted by a Company or a Controlled Company with an Affiliate of the Company or of a member of the board of directors or the board of commissioners or a major shareholder of the Company.” The definition of the same term in the old regulation only reads as follows: “a transaction that is conducted by a Company with an affiliate of the Company”;
- requires the assessment by a valuator of the appropriateness of the transaction;
- requires the company that conducts the transaction to give explanation regarding the transaction, including its considerations and reasoning for entering into the transaction, as well as to present a comparative analysis if another transaction of the same nature is conducted at the same time;
- provides broader description of exempted transactions, or transactions that do not fall under the category of affiliated transactions. These include transactions in the company’s main business and transactions that support the company’s main business.
Regulation No. IX.E.2:
- increases the qualification threshold for material transactions; under the new regulation, a transaction is deemed material if its value is more than twenty percent of the equity;
- broadens the scope of the definition of material transaction to also include project participations, rental of assets, lending and borrowing of funds, provision of assets as securities, and provision of company guarantees;
- stipulates the formula for the calculation of the threshold for qualification as a material transaction.
Both Regulations No. IX.E.1 and No. IX.E.2 have been in force since the date of their issue of 25 November 2009.