09 Jan 2023
IDX Launches New Economy Board to Accommodate Volatile Tech Stocks

Introduction

The Indonesian government and Indonesia Stock Exchange (“IDX”) have long been eager for more players in the country’s booming tech scene to go public. However, investor confidence has been undermined by a perceived lack of financial transparency among tech companies, while the overall performance of the IDX has been dragged down in recent months by the volatility of tech shares.

In an apparent attempt to address the adverse impact of such volatility on the bourse, the IDX has now created a New Economy Board (“NEB”), the details of which are set out in IDX Board of Directors’ Resolution No. Kep-00083/BEI/11-2022 (“IDX Rule I-Y”)[1] and IDX Circular No. SE-00011/BEI/11-2022 (“IDX SE-00011”)[2] (collectively, the “Regulations”, both issued on 30 November 2022). While the Regulations do not specifically say so, it seems that IDX will instruct the transfer of a stock from the Main Board to the NEB. Thus, it would appear not to be a voluntary process.

According to the bourse, the NEB will also boost transparency and public confidence as regards tech companies as the companies listed on it are required to comply with additional obligations, over and above those that that apply to other listed companies. For example, the ticker codes of NEB companies must be marked with “K” or “I”, with “K” alerting prospective investors that the company has issued multiple voting shares (for example, shares that accord founders more than one vote per share), while “I” signifies that the company has not issued such shares. These notations also serve to alert investors as to the pitfalls that are normally associated with emerging tech stocks, such as the fact that a particular stock may not yet be generating profit.

To date, the NEB lists just three companies: tech giants PT GoTo Gojek Tokopedia Tbk (GOTO), PT Bukalapak.com Tbk (BUKA), and PT Global Digital Niaga Tbk (BELI) (the owner of blibli.com).

Key Features of IDX Rule I-Y and IDX SE-00011

The new regulations are relatively straightforward. They state that the IDX has introduced the NEB (Papan Ekonomi Baru), which is only available for issuers that: (i) have high revenue growth; (ii) use technology to create product or service innovations that increase productivity and economic growth, and have social benefits; and (iii) are involved in a business activity that is prescribed by the IDX (“NEB Characteristics”).

IDX SE-00011 elaborates on the criteria that must be fulfilled by tech companies to be listed on the NEB, as follows:

1. “High revenue growth”

The company must have a compound annual growth rate of at least 30% based on its revenue over the last three years.

2. “Use technology to create product or service innovations that increase productivity and economic growth, and have social benefits”

This is based on the following criteria:

1. Business contribution

The prescribed business activities[3] must be the largest contributor to thecompany’s total revenue over the last three years.

2. Business performance

To assess business performance, the prospective issuer may choose one of thefollowing parameters, depending on the nature of its operations:

1. Growth in the number of active users of applications, for software-as-a-service (SaaS) companies, measured by users actively conducting at least one activity on digital products. This engagement of users depends on the type of industry and products issued within a certain period of time, having regard to the business sector, including paid transactions, storing or publishing information, and online games.

2. Assessment of the company’s business transactions and growth, using the following parameters:

1. Parameters that show transaction value, including:
   1. 1. Gross Merchandise Value (GMV), the total value of merchandise sold over a specified period of time through a customer-to-customer exchange (C2C) site. GMV is calculated before any deductions or other expenses.
      2. Gross Transaction Value, an operational metric that includes: (i) the total transaction value of on-demand services; (ii) the total value of products and services recorded on the company's e-commerce marketplace platform; and/or (iii) the total value of payments processed through a financial technology (fintech) services platform, excluding the value of transactions between entities within the company that were eliminated during consolidation.
      3. Total Processing Value (TPV), rupiah volume of paid purchases facilitated by the company's platform, including physical and virtual products. TPV is calculated as the sum of the product value and additional costs such as payments, logistics, and services, without including unpaid GMV transactions.
2. Parameters that show a path to profitability, which can be determined by factors that include the company’s business plan and/or financial projections related to the prospective issuer's future plans; or
3. Other parameters relevant to the prospective issuer’s line of business.

or

3. Social benefits, as assessed by:

1. Contribution to gross domestic product (GDP);
2. The number of partners (delivery drivers, for example) or the number of jobs created by the prospective issuer; and/or
3. Other parameters, as determined by the IDX.

Under IDX Rule I-Y, to be listed on the NEB, a tech company must have gone through the normal initial public offering procedures and satisfy the same listing requirements as those prescribed for the IDX’s Main Board. In addition, it must fulfill the NEB Characteristics.

ABNR Commentary

The NEB provides a useful mechanism for the bourse to mitigate the adverse impact of wild swings in tech stocks on the bourse (as has occurred recently) by removing such stocks from the Main Board, while simultaneously providing a vehicle for tech stocks to brand themselves as such on the stock market. In addition, the creation of the NEB should help provide greater transparency to investors as regards the financial performances and shareholding structures of the companies listed on it.

By partner Mr. Ayik C. Gunadi (agunadi@abnrlaw.com), senior associate Mr. Novario Hutagalung (nhutagalung@abnrlaw.com), and associate Ms. Nesya Ashari (nashari@abnrlaw.com).

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.