On 21 April 2020, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) issued OJK Regulation No. 17/POJK.04/2020 on Material Transactions and Changes in Business Activities (“OJKR 17/2020”), annulling the previous Rule No. IX.E.2 as attached to Decision of Bapepam-LK No. KEP-614/BL/2011 dated 28 November 2011 on the same subject matter (“Rule IX.E.2”). Certain provisions of OJKR 17/2020 on the full exemption from Material Transaction requirements, sanctions as well as the transitional provisions are effective as of 21 April 2020, while the other provisions of the new regulation will only come into force 6 months after its promulgation (i.e. 21 October 2020).
One significant change made by OJKR 17/2020 is the additional requirement for a Tbk Company to obtain approval from its independent shareholders before conducting a Material Transaction that potentially has an adverse effect on its business or that at the same time constitutes an affiliated party transaction. OJKR 17/2020 only provides general examples of those constitute as causing “adverse effect”, including transaction that may decrease 80% or more of proforma operating income, but it does not provide a specific meaning or measures and therefore this may potentially cause uncertainty in practice.
In addition, OJKR 17/2020 broadens the scope of the Material Transaction by not limiting the term only to specific transactions with a transaction value of at least 20 % of the Tbk Company’s equity as previously defined by Rule IX.E.2. Under OJKR 17/2020, the term ‘Material Transaction’:
- includes the dilution of the shares of a Tbk Company in its Controlled Subsidiary, particularly to the extent (a) the dilution results in the non-consolidation of the financial statements of the Controlled Subsidiary from the Tbk Company and (b) any one of the thresholds specified below is met:
- the Controlled Subsidiary’s total assets make up at least 20% of the Tbk Company’s consolidated total assets; or
- the Controlled Subsidiary’s net profits make up at least 20% of the Tbk Company’s consolidated net profits; or
- the Controlled Subsidiary’s operating income makes up at least 20% of the Tbk Company’s consolidated operating income.
- includes obtaining and releasing a company or operational segment if one of the thresholds below is met:
- the transaction value make up at least 20% of the Tbk Company’s equity;
- the total assets being the transaction object make up at least 20% of the Tbk Company’s total assets;
- the transaction object’s net profit make up at least 20% of the Tbk Company’s net profit; or
- the transaction object’s operating income make up at least 20% of the Tbk Company’s operating income.
- sets a lower threshold for transactions conducted by a Tbk Company with negative equity to at least 10% of the Tbk Company’s total assets.
Unlike Rule IX.E.2, where certain transactions enjoyed full exemptions from the Material Transaction requirements, OJKR 17/2020 gives full exemptions only on Material Transactions that are conducted in the ordinary course of business and have been approved by the general meeting of shareholders (“GMS”) provided they must be disclosed in the Tbk Company’s annual report or financial statements. On the element of “ordinary course of business”, the elucidation of OJKR 17/2020 explains that the term refers to a “new” business and therefore it is unclear whether existing business also enjoys the same exemption, although logically we believe it should. Based on this approach, the transactions previously exempted under Rule IX.E.2, such as, the issuance of non-equity securities through a public offering, transactions already been disclosed in prospectus and corporate guarantee guaranteeing a 99% controlled subsidiary, are now no longer exempted from the Material Transaction requirements when meeting the threshold.
OJKR 17/2020 also gives exemptions from the requirements to (i) appoint an independent appraiser and (ii) obtain a GMS approval for Material Transactions, for any transaction:
- conducted between the Tbk Company and its Controlled Subsidiary, 99% of whose issued and paid-up share capital is owned by the Tbk Company or between the Controlled Subsidiaries, 99% of whose issued and paid-up share capital is owned by the Tbk Company;
- in which a loan is obtained directly from any onshore or offshore banks, venture capital companies, financing companies, or infrastructure financing companies;
- in which security interests are granted in favour of any onshore or offshore banks, venture capital companies, financing companies, or infrastructure financing companies for loan received by Tbk Company or its Controlled Subsidiary;
- leading to an increase or reduction in capital participation in another company in order to maintain the Tbk Company’s and/or its Controlled Subsidiary’s ownership percentage in that company, after 1 year of the participation date;
- conducted under a court order;
- conducted through an auction, where the Tbk Company is an auction participant;
- conducted by a non-bank Tbk Company with negative net working capital and negative equity;
- conducted between a financial services Tbk Company and its Controlled Subsidiary engaging in sharia financial services for the purpose of developing the Controlled Subsidiary;
- conducted by a Tbk Company to comply with the laws and regulations in force; and/or
- conducted by a government-controlled (whether directly or indirectly) Tbk Company for the purpose of restructuring.
In addition, OJKR 17/2020 gives broader authority to the OJK to exempt a financial services Tbk Company under certain conditions prescribed by the OJK from the requirements to (i) appoint an independent appraiser, (ii) make public disclosures and (iii) obtain prior GMS approval. The specific conditions are yet determined under OJKR 17/2020 and therefore this would be subject to OJK’s future discretion.
Similar to Rule IX.E.2, OJKR 17/2020 requires a Tbk Company to obtain prior GMS approval if the Material Transaction value exceeds 50% of the Tbk Company’s equity or if the transaction is considered not in arms-length basis at the opinion of an independent appraisal. However, OJKR 17/2020 now also requires for a prior GMS approval if the transaction is conducted by a Tbk Company with negative equity and has a transaction value exceeding 25% of its total assets.
Public Disclosure Media
Unlike Rule IX.E.2, where it only required public disclosure in 1 Indonesian language daily newspaper with nation-wide circulation, OJKR 17/2020 now provides stricter requirements for the public disclosure media, as described below:
- for listed Tbk Company: at least on the Tbk Company’s website and the Indonesia Stock Exchange’s website; and
- for non-listed Tbk Company: at least on the Tbk Company’s website and in 1 Indonesian language daily newspaper with nation-wide circulation or on the OJK’s website.
OJKR 17/2020 also requires the Tbk Company to disclose the result of the Material Transaction in the Tbk Company’s annual report, which was not required under Rule IX.E.2.
In contrast to Rule IX.E.2, which does not provide for any specific sanction, OJKR 17/2020 imposes administrative sanctions for failure to comply with the Material Transaction requirements, ranging from the issuance of warning letters to the revocation of registration statements from the OJK.
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 A company controlled by the Tbk Company, either directly or indirectly.
 The calculation must be based on the audited financial statements with a period not later than 12 months prior to either: (x) the date on which the Tbk Company’s shareholding is diluted, if the calculation result is 50% or less; or (y) the date of the GMS approving the Material Transaction, if the calculation result is more than 50%.