12 May 2023
New Regulation Consolidates and Expands Shareholder Rights in Indonesian SOEs

A. Introduction

On 3 March 2023, the Ministry of State-Owned Enterprises (“MSOE”) issued Regulation No. PER-2/MBU/03/2023 (“Reg. 2/2023”)[1], which revokes 20 other regulations and came into force on 24 March 2023.

The new regulation is part of a broader effort to streamline oversight and governance at Indonesia’s state-owned enterprises (“SOE”). To date, this streamlining process has resulted in a total of forty-five regulations on SOE oversight and governance being reduced to just three: (i) Reg. No. PER-1/MBU/03/2023 (which deals with special assignments and SOE social and environmental responsibility); (ii) Reg. No. PER-3/MBU/03/2023, (SOE internal management and human resources), and (iii) Reg. 2/2023.

Reg. 2/2023 brings together measures relating to the governance of SOEs, risk management, assessment of SOE soundness, strategic planning, guidelines for significant corporate actions, IT management and application, and reporting, which were previously scattered across 20 different regulations. In this ABNR Legal Update, we will focus on the rights that Reg. 2/2023 affords to:

1. shareholders in a partly privatized SOE, that is, a company that is limited by shares and is majority state-owned, referred to in Indonesian as a Persero, and
2. the State as the sole investor in an SOE that is 100% owned by the state and is not limited by shares, referred to in Indonesian as a Perum.

In addition, Reg. 2/2023 sets out detailed rules governing significant SOE corporate actions, which include: 1) equity investments by the state; 2) restructuring; 3) merger, acquisition, consolidation, spin-off, dissolution, and liquidation; 4) privatization; 5) collaborative venture; 6) procurement of goods and services; 7) write-off or assignment of state-owned fixed assets; and 8) hedging. Previously, these were governed separately by a number of different regulations. As the rules are highly technical in nature, they are beyond the scope of this update.

B. SOEs and Shareholder Rights

Reg. 2/2023 now recognizes 9 general shareholder rights and related obligations on SOEs (compared with 5 under Reg. 1/2011[2]). The full list of shareholder rights and related SOE obligations is as follows:

1. A shareholder has the right to attend and vote at general meetings; in the case of an SOE that is limited by shares and is majority state-owned (Persero), each share confers one vote on its holder;
2. In the case of an SOE that is 100% owned by the state and is not limited by shares (Perum), the state has the right to make final management and policy determinations;
3. A shareholder has the right to be provided with material information on the SOE in a timely, measurable and regular manner;
4. A shareholder has the right to receive a share of the SOE’s profits as a dividend and a share of the SOE’s remaining assets after liquidation, with such shares being calculated proportionately in accordance with each shareholder’s holding in the case of a Persero, or the state’s capital investment in the case of a Perum;
5. Holders of shares of the same series and same class must be treated equally, in accordance with SOE regulations and procedures, or alternatively they must be provided with information on the regulations, procedures, provisions and capital-structure arrangements that result in a particular shareholder being accorded a level of influence or control that is disproportionate to their shareholding;
6. SOEs must adopt a communications policy that facilitates and encourages shareholder or investor participation;
7. An SOE parent entity must ensure that its good corporate governance policies also apply to its subsidiaries and controlling entities (this reference to “controlling entities” does not appear to make sense in this context; it could possibly be a typographical error and that what is really intended is “controlled entities”) ; and
8. SOEs must adopt tight rules and procedures governing mergers, acquisitions, consolidations, spin-offs, dissolutions, liquidations, and substantial extraordinary transactions so as to ensure that such transactions are conducted in a transparent manner that protects the rights of all shareholders in accordance with their class.
9. Shareholders shall also have such other rights as may be provided by the SOE’s articles of association, and the provisions of the laws and regulations in effect.

C. ABNR Commentary

Reg. 2/2023 now brings together under one umbrella a host of regulations on SOE corporate governance and significant corporate actions, thereby helping to clarify the rules and facilitating compliance. With SOEs continuing to account for some 30% of the Indonesian economy, the ongoing regulatory simplification process in the state-owned sector is warmly to be welcomed.

By partner Mr. Ayik C. Gunadi (agunadi@abnrlaw.com), senior associate Mr. Novario Hutagalung (nhutagalung@abnrlaw.com), and associate Ms. Nindi Saskia (nsaskia@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.