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Draft rule on rights issue of public companies

Freddy KaryadiOene Marseille

Under Rule No IX.D.1 (Attachment to the Decree of the Chairman of Badan Pengawas Pasar Modal dan Lembaga Keuangan (Bapepam-LK) No Kep-26/PM/2003, dated July 17 2003) on Pre-emptive Rights, each shareholder has a pre-emptive right upon any issuance of new shares of a public company. Such rights would enable the shareholders to purchase newly-issued securities, including shares, securities convertible into shares and warrants, before they are offered to other third parties.

On February 3 2012, a new draft of Rule IX.D.1 was released. The new draft revises certain procedures and terms and conditions of the procedures as stipulated in the Rule, for instance the timeline for holding a general meeting of shareholders and the procedures for it. Under the new draft the capital market and financial statement supervisory board (Bapepam-LK) also governs the use of funds obtained through a public offering with pre-emptive rights. If the funds are to be used to engage in any material transaction, the issuer must comply with the material transaction regulations, and thus must announce important information on the same date of the submission of the registration statement to Bapepam-LK.

The new draft also governs the effective date of the registration statement in relation to the pre-emptive right. The registration statement from Bapepam-LK is effective after passing 30 days after the date when the registration statement received by Bapepam-LK is complete; or after the latest amendment is delivered by the issuer or requested by Bapepam-LK; or after an effective statement from Bapepam-LK stating that amendments and/or additional information are no longer required.

Under the new draft, the possibility of exercising the rights by making an in-kind contribution is introduced. This would ease the process of reverse takeover as the real incoming cash which is normally provided by the new controlling shareholder through a cash round-trip would no longer be needed. Such in-kind contribution may be conducted if the object of the in-kind contribution is directly related to the utilisation plan of the fund. To make an in-kind contribution as a payment of capital, there should be an appraisal report concerning the reasonable value of the object of the in-kind contribution and the reasonability of the transaction itself.

The new draft also provides that the standby purchaser for the rights issuance would divest the shares it absorbed in the rights issuance if such party becomes the owner of 80% or more of the total issued capital. The divested shares must be offered to the public in order to ensure that public shareholders own no less than 20 % of the issued capital; the total number of shares must be owned by at least 300 parties within two-year period after the standby purchaser holds more than 80%.

Oene Marseille and Freddy Karyadi

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