M&A activity

1. What is the current status of the M&A market in Indonesia?

Despite the slowing economy last year, M&A activity picked up generally at the end of 2014, although not specifically involving public companies. A new president took office in October 2014 and has made increasing infrastructure a key policy objective. This has initially led to increased flows into the equity and bond markets, although the Indonesian markets remain unpredictable as the new president moves to consolidate his power base and put his stamp on policies. Given Indonesia’s significant GDP growth and growing middle class, interest in the country is likely to remain strong.

Major public M&A deals in 2014 included:

• Terra Investment Holdings acquiring 53.43% of the shares in PT Cipaganti Citra Graha Tbk, a taxi fleet operator, in October 2014.
• J Trust Co, of Japan, acquiring 99% of the shares in PT Bank Mutiara Tbk, a commercial bank, in November 2014.

2. What are the main means of obtaining control of a public company?

Typically, an acquisition of control over a public company is made by way of a share acquisition from the incumbent controller or by the purchase of shares in a rights offering. A change of control is generally deemed to occur where either:

• More than 50% of shares in the public company are acquired.
• Less than 50% of the shares are acquired, but there is an effective change of control over the management and/or policy-making in the company.

A Mandatory Tender Offer (MTO) is generally required following a change of control arising from an acquisition of shares from an incumbent shareholder, but is not required if the change of control arises from the subscription for newly issued shares in a rights offering.

Other means of obtaining control include mergers and Voluntary Tender Offers (VTO). However, given the regulatory and procedural complexities that a merger will entail (particularly when it involves public companies), mergers are rare except where they occur for regulatory purposes in the banking sector. VTOs are also rare and are more often used by a controlling shareholder to take a public company private and de-list rather than to acquire a controlling stake.

Hostile bids

3. Are hostile bids allowed? If so, are they common?

Acquisitions in Indonesia can be performed through either:

• Direct buyouts from existing shareholders.
• Acquiring newly-issued shares in a rights offering.

Almost all Indonesian public companies have controlling shareholders in place, making hostile takeovers impossible. Direct buyouts require the co-operation of the existing controlling shareholders for the obvious reason that those controlling shareholders must be willing to sell, while rights offerings also require the co-operation of controlling shareholders for the simple reason that they are subject to the approval of a shareholders’ meeting, where the controlling shareholders will have a blocking vote. 

Regulation and regulatory bodies

4. How are public takeovers and mergers regulated, and by whom?

Takeovers of public companies are principally regulated by:

• Law No. 8 of 1995 regarding the Capital Markets.
• Regulations issued by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan) (OJK), namely:
  • OJK Regulation No. IX.H.1 regarding Acquisitions of Public Companies; and
  • OJK Regulation No. IX.F.1 regarding Voluntary Tender Offers.

In addition, several other statutes can affect the acquisition of public companies, including:

• The Indonesian Company Law, which sets out procedural requirements for a merger.
• The Indonesian Employment Law, which gives employees the right to resign and receive a severance package where there is a change of control.
• The Indonesian Anti-Monopoly Law, which requires notification to the Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha) (KPPU) for post-acquisition review if certain thresholds are met in combined assets and/or turnover.

Rules from the Indonesia Stock Exchange (IDX) regarding securities trading may also be applicable if the shares are listed on the IDX (as almost all public companies are). Most (although not all) shares in public companies are held in scripless form (that is, in non-physical form, without share certificates) which must be deposited in the Indonesian Central Securities Depository (Kustodian Sentral Efek Indonesia) (KSEI). Most transactions by public companies must therefore be settled through the KSEI. Most scrip shares are held by controlling shareholders with longstanding holdings, and these shares would typically be converted to scripless form in the process of consummating any transaction in these shares.

The OJK is responsible for overseeing public companies and capital market activities generally. Other government agencies may have regulatory oversight of a particular transaction depending on the business activities in which the public company engages, for example:

• The OJK oversees the banking industry.
• The Ministry of Transportation supervises the aviation, shipping and land transportation sectors.
• The Ministry of Informatics oversees the telecommunications industry.

Regulations issued by these and other industry-specific government agencies will also impact mergers and acquisitions.

Further information pertaining to public mergers and acquisitions in Indonesia can be accessed here. 

SSEK - 25th November 2015

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

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