31 May 2019
OJK Imposes New Requirements for Capital Increases Using Mechanisms Other than Rights Issues

A. Introduction

The Financial Services Authority (OJK) has issued a new regulation (the “New Regulation”) to update the rules on capital increases conducted by way of rights issues and other mechanisms by publicly listed companies (“Issuers”). The New Regulation (POJK No. 14/POJK.04/2019) entered into effect on 30 April 2019 but was only made publicly accessible on the OJK website in early May 2019.

The New Regulation amends the previous rules on rights issues, as set out in OJK Regulation No. 32/POJK.04/2015, and revokes OJK Regulation No. 38/POJK.04/2014 (“OJK Reg. 38”) on capital increases using mechanisms other than rights issues (“Other Capital Increases”), with the rules on Other Capital Increases now being incorporated in the New Regulation.

B. Key Changes

Previously, under OJK Reg. 38, Other Capital Increases conducted (a) for the purpose of improving the financial position of an Issuer; or (b) for some purpose other than to improve the financial position of an Issuer had to first be approved by the General Meeting of Shareholders (GMS) based on a simple majority in favor of the change. Some examples of capital increases as referred to in point (b) include a capital increase that is conducted to attract a strategic investor (based on an investment of less than 10% of issued and paid-up capital), a share-swap transaction, and an employee-share option program (ESOP).

By contrast, the New Regulation requires Other Capital Increases conducted for some purpose other than to improve the financial position of the Issuer to be approved by independent shareholders and by unaffiliated shareholders, that is, shareholders who are not affiliated with the Issuer or the Issuer’s directors, commissioners, principal shareholders or controlling shareholders. In addition, the New Regulation prescribes the following quorum and threshold for approval of such Other Capital Increase by the GMS, and quorum and threshold requirements for a second and third GMS should the requirements for approval by the first or second GMS not be satisfied, as the case may be:

C. ABNR Commentary

The New Regulation is clearly designed to improve protection for minority and unaffiliated shareholders as the OJK now requires Other Capital Increases conducted for some purpose other than to improve the financial position of the Issuer to be approved by independent shareholders and by unaffiliated shareholders, as described in Section B above. As such approval may be difficult to secure, Issuers and strategic investors will need to figure out alternative investment structures that are less complex than rights issues, which were normally conducted using the Other Capital Increase mechanism.

By Chandrawati Dewi (cdewi@abnrlaw.com) and Novario Hutagalung (nhutagalung@abnrlaw.com)

This ABNR News and 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.