12 Apr 2023
Indonesian Competition Commission Rolls Out Major Overhaul of Merger Control Regime
The Indonesian Competition Commission (“KPPU”) has issued a streamlined merger control regulation, which makes fewer mergers, consolidations and acquisitions subject to a notification requirement (particularly foreign-to-foreign ones), sets new rules on the notification process, and reduces review periods. Separately, the Indonesian Government has issued a regulation that makes merger notifications to the KPPU subject to a notification fee.
Changes to merger control test
Like the previous 2019 merger control regulation that it replaces, the new one requires notification of mergers, consolidations and acquisitions if they meet the following asset/sales thresholds:
- Combined value of assets exceeds IDR 2,5 trillion (approx. USD 167,500,000); and/or
- Combined annual sales value exceeds IDR 5 trillion (approx. USD 335,000,000).
However, as with the old approach used prior to 2019, the calculation of the asset and sales value should be based on assets and sales in Indonesia only. Under the previous merger control regime that was applicable between 2019 and the end of March 2023, the asset value would be calculated based on global assets. Obviously, this threshold was easily met, resulting in a huge increase in notifications since 2019. It is expected that the number of transactions that need to be notified to the KPPU, in particular foreign-to-foreign ones, will significantly reduce as a result of this change.
Transactions between Undertakings with Assets and/or Sales in Indonesia
As with the pre-2019 approach, another major change is that only foreign-to-foreign transactions that have dual-nexus with Indonesia will need to be notified to the KPPU. This means that two undertakings involved in the transaction should directly or indirectly (through affiliates) have business in or sales to Indonesia. This is again a significant development: under the 2019 regulation, even a transaction involving only one undertaking with business in or sales to Indonesia (single-nexus) could trigger a notification to the KPPU. This was another reason why the number of notifications in Indonesia spiked from 2019. It is expected that the dual-nexus approach will be another reason for a reduction in the number of foreign-to-foreign transactions that need to be notified to the KPPU.
Like the 2019 merger control regulation, a notifiable transaction will need to result in a change of control and be carried out between non-affiliated parties. Further, acquisitions of both shares and/or assets may need to be notified to the KPPU. However, asset acquisitions are exempt from the notification obligation if they involve:
- A non-bank asset transfer transaction valued at < IDR 250 billion (approx. USD 16,750,000);
- A bank asset transfer transaction valued at < IDR 2.5 trillion (approx. USD 167,500,000);
- The transfer of assets is carried out in the ordinary course of business;
- The assets have no relationship with the business activities of the undertaking acquiring the assets.
Under the new regulation, notifications must now be submitted through an online portal (referred to in the new merger control regulation as the “notification system”), at notifikasi.kppu.go.id., which will be launched soon. The portal is only accessible between 9 am and 2 pm. This implies that a notification not submitted before 2 pm on the day of the deadline of 30 business days after the transaction becoming effective and deemed complete by the KPPU taskforce handling the notification will be considered a late submission, and be subject to penalties of IDR 1 billion (approx. USD 67,000 million) per day, with a maximum of IDR 25 billion (approximately USD 1,675,000).
The notification process still comprises two phases: (i) a check of the completeness of notification documents and (ii) a review, consisting of initial and comprehensive review sub-phases, with the latter only being applicable to transactions that appear to be problematic from an Indonesian competition perspective.However, the first phase, which is applicable to all notified transactions, now also consists of a check if the transaction is notifiable. This check should be completed within three working days after the notification is submitted. If the notification documents are complete, the KPPU will issue a notification registration number and official confirmation on whether or not the transaction is notifiable. If the transaction is notifiable, the notification will continue to the review phase. If the notification documents are not complete, the KPPU will request the undertaking to provide whatever additional documents/information that may be deemed necessary.
The criteria to assess the potential impact of transactions on competition largely remain the same. However, in addition to entry barriers, potential anticompetitive behavior, efficiency and bankruptcy, the new merger control regulation requires the taskforce handling the notification to also take into account such considerations as competitiveness and strengthening national industries, technological development and innovation, protecting micro, small and medium enterprises, the impact on manpower, and the proper application of the law.
The new merger regulation limits the period to check the completeness of documents, confirm the notifiability of the transaction and review it to 3 plus 90 business days. This is much shorter than the timeline under the 2019 merger control regulation, under which the KPPU would need to check the completeness of the documents within 60 business days for initial review and, if relevant, comprehensive review within 90 business days (150 business days in total).
If submitted information or documents prove to be false, the KPPU may cancel registration of the notification and/or the findings of its review. Cancellation may again be treated as late notification, and be subject to penalties of IDR 1 billion (approx. USD 67,000) per day, with a maximum of IDR 25 billion (approximately USD 1,675,000).
A new Government Regulation has been issued that makes merger notifications to the KPPU subject to a fee that is calculated based on the following formula:
0.004% x the value of assets OR sales in excess of the notification threshold, whichever is lower.
The value of assets or sales is calculated based on the total asset or sales value of:
- the surviving entity; or the consolidating undertaking; or the acquiring undertaking and the acquired undertaking; and
- the undertakings that are directly or indirectly controlled by the surviving undertaking resulting from the merger; the consolidating undertaking; or the acquiring undertaking and the acquired undertaking.
- If both the asset and sales values meet the threshold, the filing fee will be calculated using whichever value is lower and will only be payable if the KPPU finds the transaction is notifiable.
However, the regulation pegs the maximum fee at IDR 150 million (approx. USD 10,000).
The notification fee can be reduced to up to 0% or fully waived based on or more of the following considerations:
- the transaction supports the development of micro, small, and medium enterprises;
- inability to pay or force majeure; or
- pursuant to a specific government policy.
These considerations are to be further elaborated in a KPPU regulation, subject to prior approval from the Minister of Finance.
The new merger control regulation revokes and replaces the 2019 merger control regulation. There is no explicit reference in the new merger control regulation to the 2020 merger control guidelines, that were issued to implement the 2019 regulation, so we may assume that they are still in force to the extent they do not contradict the new merger control regulation.
Thus, any voluntary pre-merger consultation, mandatory post-merger notification, or comprehensive assessment initiated before the new merger regulation came into force (on 31 March 2023) will be assessed against the 2019 merger control regulation. The new merger control regulation will therefore only apply to transactions notified on or after 31 March 2023.
Any mandatory post-merger notification submitted before the Government Regulation comes into force (on 4 May 2023) will not be subject to a notification fee. The Government Regulation will therefore only apply to transactions notified on or after 4 May 2023.
It is commendable that the new merger control regulation re-introduces the asset value and nexus criteria that were applicable before 2019. Under the 2019 regulation, transactions that involved undertakings with even only small, indirect sales to Indonesia would often need to be notified to the KPPU. This caused significant frustration for international business players, as it was clear from the outset that these transactions would have no material impact on competition in Indonesia.
The international business community will also appreciate the reduction in the period for checking the completeness of documents from 60 to 3 business days. Previously, the 150 business days to check the completeness of documents and review the transaction (in practice often taking even longer) created uncertainty for a considerable period post-closing, when undertakings would usually wish to progress quickly to integrate their businesses and look ahead.
Undertakings involved in mergers, consolidations or acquisitions will certainly also appreciate that should doubt exist, they can know within 3 business days whether the transaction is notifiable. The timeline to issue the confirmation is short, and it remains to be seen if the KPPU will be able to meet the deadline. There is no indication that the authority has plans to increase its staff to handle merger control matters. However, they may be anticipating a reduced workload due to the changes to the asset value and nexus criteria.
It is regrettable, though, that full submission of information and documents will still be required in order to ascertain if a transaction is notifiable. Indeed, generally, there is no indication that under the new merger control regulation, notification will be any less cumbersome than hitherto. This means that notifications will still require submission of substantial amounts of information and documentation, particularly if undertakings involved in the transaction have business in or sales to Indonesia through several subsidiaries. This is certainly a missed opportunity.
It is also significant that the new merger control regulation, together with 6 other KPPU regulations, was published just a few weeks before the end of the terms of the current KPPU commissioners. Although at least some are expected to be re-appointed, there is no certainty that the new KPPU commission will endorse the new regulations. Consequently, further changes to the Indonesian merger control regime might be introduced under the new leadership, either via the replacement or amendment of the new merger control regulation or the introduction of new merger control guidelines.
By partner Ms. Chandrawati Dewi (email@example.com), foreign counsel Mr. Gustaaf Reerink (firstname.lastname@example.org), and partner Mr. Bilal Anwari (email@example.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.
 KPPU Regulation No. 3/2023 on Guidelines for Mergers, Consolidations and Acquisitions of Shares and/or Assets that May Result in Monopoly Practice and/or Unhealthy Competition. The regulation, which replaces KPPU Regulation No. 3/2019, is dated on 30 March 2023 and came into force on 31 March 2023. This is one of a series of seven regulations issued by the current leadership of the KPPU, just before their term expires at the end of April 2023. (Legal updates on the other regulations will be published separately.)
 In case of transactions carried out by undertakings operating in the banking sector, the sales/asset value should exceed IDR 20 trillion (approx. USD 1,340,000,000).
 This last criterion is new, and replaces the following two criteria under the 2020 guidelines: (iv) transfers of assets that are finished goods from one undertaking to another undertaking for resale to consumers by an undertaking that is active in the retail sector (e.g., the sale of consumer goods by retailers), and (v) transfers of assets that are supplies to be used within 3 months in the production process (e.g., the purchase by an undertaking of raw materials and basic components from various sources for production.)
 Under the 2019 merger control regulation, implementation of laws and regulations was a separate criterion to determine whether a transaction was notifiable. Apparently, the KPPU prefers that undertakings still notify transactions that are to implement laws and regulations, so the authority can review such transactions comprehensively if necessary.
 The new merger control regulation does not refer to the possibility of a shortened, simplified notification for certain transactions. However, this possibility may be introduced under separate guidelines, as was the case with the 2020 merger control guidelines, which elaborated the 2019 merger control resolution.
 Government Regulation No. 20 of 2023 on the Type and Rates of Non-Tax State Revenues at the Indonesian Competition Commission. The regulation is dated 5 April 2023, but only enters into force 30 days thereafter (4 May 2023).