Indonesia: New venture capital rules

Author: | Published: 22 Feb 2016
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Ali Budiardjo Nugroho Reksodiputro

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Graha Niaga, 24th Floor Jl. Jend. Sudirman Kav. 58 Jakarta 12190

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Oene Marseille Emir Nurmansyah

In late December 2015, Indonesia's capital market regulator (Otoritas Jasa Keuangan or OJK) issued several new regulations affecting the venture capital industry in Indonesia. Under the new regulations, a venture capital company is required to have a minimum equity of IDR50 billion (approximately $3.7 million). A venture capital company licensed before this date and having less than the required minimum equity must inject additional funds to comply with the new rule by December 31 2020.

Under the new regulation, a venture capital company in Indonesia is required to invest at least 15% of its operation in share capital or convertible security of investee companies within three years of coming into operation. The minimum ratio between investment and assets is 40%, which must be achieved by the third year of operation.

Investment by a venture capital company to a single investee company is limited to 25% of the venture capital company's equity. Share investment in an investee company must be divested within 10 years.

The new regulation provides that divestment may be done by way of an initial public offering (an IPO), private placement to a new investor, or share buyback by the investee company.

The OJK has signaled that the new regulation may be further amended to reflect input from the industry. Dumoly Pardede, a high-ranking OJK officer, has expressed his willingness to be responsive to comments from the industry. For example, Pardede has said that he is open to reducing the minimum equity requirement in favour of a more tiered capital commitment over time. Pardede also responded favourably to the industry's request that a secondary board be set up to facilitate future divestment.

The new regulation is effective as of December 21 2015.

Oene Marseille and Emir Nurmansyah