This content is from: Local Insights

Material transaction and change of core business regulations

Freddy KaryadiOene Marseille

Indonesian capital market and financial institution supervisory board has recently prepared and circulated a new draft for material transaction and change of core business regulation.

The major revisions in the draft are as follows:

Definition

The definition of controlled company by a public company which would include any company indirectly controlled by a public company. Therefore, the applicability of the regulation would also affect such company.

The definition of core business is clarified by adding the business which is directly run by a public company

Unlike the prevailing regulation which requires the compliance of the regulation shall start no later than two days after the transaction is implemented, the draft would require a public company to comply with the material transaction procedures within two days as of the execution of the agreement which constitutes the material transaction;

In order to harmonise with Rule 144A in the US, the draft waives the requirement to publish the following information to public if a public company conducts a material transaction in the form of debt Securities offering abroad to qualified institutional buyer and/or through:

(i) parties to buy such debt instrument;

(ii) amount of fund to be borrowed;

(iii) interest rates; and

(iv) summary of appraiser statement.

The above four elements of information shall only be announced at least in one daily national news paper in Indonesian language and deliver its supporting documents to Bapepam and LK no later than the end of second working day after the issuance date of debt instrument.

The exemption from the material transaction requirement is expanded by including the following:

(i) a loan given by venture capital and finance company in Indonesia or abroad;

(ii) collateral provision by a public company to banks, venture capital or finance company which grants facility to a subsidiary owned no less than 99% interest by a public company; and

(iii) a material transaction done by a non-bank company which has negative working capital.

The draft has not clarified various remaining important issues. It is unclear whether the regulation would apply if a public company waives its pre-emptive rights to subscribe new shares issued by its subsidiary.

It is unclear how to calculate the amount of equity as whether the equity shall include shares premium and retained earnings or not. It is also unclear whether pledge of treasury stocks by a public company may constitute material transaction since treasury stocks would not be recorded as assets of a public company.

The draft of new regulaiton of voluntary tender offer and mandatory tender offer are also circulated by BAPEPAM-LK in order to have comments from public.

Oene Marseille and Freddy Karyadi

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