M&A in Indonesia

Contents

1.     Key Takeaways

2.     FAQ

3.     M&A Background - Legal Changes and Landscape

4.     Trends

a)     State-Owned Enterprises

b)     Tech Industries

c)     Financial Services and Banking

5.     Restrictions for Foreign Investment

a)     Process and Requirements

b)     Profit Repatriation and Financing

6.     Process, Shares and Rights

a)     Acquisition Definition and Process

b)     Shareholder Rights - General

c)     Shareholder Rights – Minority Shareholders

7.   How ASK can help

1. Key Takeaways

• M&A is an easier market entry option than previously

• Exposure re. the level of disclosure for acquisition of privately-owned companies is limited

• Less compliance is required, and ease of approval has improved

2. FAQ

• What are the recent trends for M&A in Indonesia?

• What approval do M&A transactions require in Indonesia? 

• What is the company acquisition process in Indonesia? 

• How do general and minority shareholders rights differ within Indonesian companies? 

 M&A Background - Legal Changes and Landscape

The Indonesian government has been keen to open up its marketplace to foreign entities for many years. Over time, this has taken place via a series of reforms designed to facilitate the flow of foreign investment and capital input. Acts and laws have been passed which aim to simplify the regulatory landscape as well as lower the requirements created by an intimidating and complex bureaucracy.

Chief amongst reforms has been the Omnibus law (‘Job Creation bill’), officially passed in October of 2020. This mammoth Act amended 79 existing pieces of legislation covering 1,200+ clauses. Sectoral minimum pay was abolished, business sanctions diluted or removed, severance pay requirements relaxed and the mechanisms for regulatory approval eased.

This has led to a much more attractive landscape for M&A within the Indonesian market. Although growth and investment levels dipped in 2020 due to the COVID-19 crisis, by July of that year 104 M&A deals were recorded by the Indonesian Competition Supervisory Commission (KPPU), compared to 90 deals for the entirety of 2019. These deals are high-value, where asset valuation is above 2.55 trillion IDR or sales value is over 5 trillion IDR. Many other smaller-value M&A deals will have taken place.

Ease of process has been assisted by technology. The Online Single Submission system (OSS) allows businesses to apply for business licensing online as opposed to engaging in more onerous paper-based application. This has counteracted some of the administrative difficulties caused by the COVID-19 pandemic.

 4. Trends

State-Owned Enterprises

The M&A landscape has been heavily impacted by the consolidation of state-owned enterprises (SOEs). The mining, energy sector and healthcare sectors have experienced consolidation, which has acted as a key driver for M&A deals.

Tech Industries

Even before the advent of the Omnibus Law, the Indonesian technology sector was surging; M&A deals for the first half of 2017 increased 80% on year previous. Notable recent deals include those between the Chinese conglomerate Tencent and the ride-hailing app GoJek, and Alibaba (another Chinese giant) investing in Indonesian e-commerce. Tech start-ups Linkaja, and Blibli have also benefited from M&A deals.

Financial Services and Banking

The Indonesia Financial Group (IFG) was formed in 2020 by the Ministry of SOE; a holding company designed to facilitate activity and gain influence in the financial services sector. Prior to this, four financial institutions had been acquired by the ministry, with more gains expected.

Banking has also been an active arena. With PT Bank Central Asia acquiring Rabobank Indonesia, Bangkok Bank taking over Perata Bank and. And BRI moving into the local insurance field.

 5. Restrictions for Foreign Investment

Specific laws and regulations pertaining to individual sectors control foreign access to the Indonesian marketplace. A variety of sectors ban any foreign input but others are completely open, with a further group of sectors subject to a range of limitations. Access to some sectoral groups is controlled by specific governmental agencies, such as aviation, banking and financial services.

The ‘Negative List’ – updated over time – is a government-produced document that describes which industries are open to FDI, and to what extent.

The Indonesian Investment Coordinating Board (BKPM) is responsible for investment policy implementation and has a specific brief to boost both domestic, and foreign investment.

As such, M&A transactions must receive approval of the Chair of BKPM.

Process and Requirements

• Most FDI needs to be handled via the creation of a Foreign Limited Liability Company (Perseroan Terbatas Penanaman Modal Asing) – a PT PMA.

• Some sectors do not require the creation of a PT PMA – in these sectors, a ‘Representative Office’ structure can be relied upon instead.

See our guide to Indonesian business structures here for further details.

Profit Repatriation and Financing

• Rules for exchange control and profit repatriation for foreign companies do not face restrictions. Usually, however, there is a requirement to report financial agreements involving foreign exchange to the Indonesian Central Bank.

 6. Process, Shares and Rights

Acquisition Definition and Process

Rather than being based upon share percentage thresholds being reached or overstepped, an acquisition is defined as having taken place when, once shares have been transferred, a change in company control has taken place.

Acquisition via share sale is usually driven by the company itself, or a shareholder/group of shareholders selling enough shares to the foreign entity to allow it to gain company control. Control may also change via asset acquisition, as well as company merger or amalgamation.

Shareholder Rights – General

Every shareholder has a variety of statutory legal rights, which range from having the right to cast a single vote at a GMS (General Shareholder Meeting), subscription to newly-issued shares and the receipt of dividends in the event of liquidation, to share re-purchase rights and the right to legal recourse if the shareholder suffers losses as a result of unreasonable company actions and/or decisions.

As long as they don’t override the law, PT PMA’s Articles of Association can also create other stipulations and rights, such as Director and Commissioner nomination.

Shareholder Rights – Minority Shareholders

A single shareholder, or group of shareholders together that represent 10% or more of the total issued shares have a variety of rights. These include the power to request the holding of a General Shareholders Meeting (and the proposal of company dissolution at this meeting), the requesting of a legal investigation into the company (if unlawful activity resulting in loss is suspected to have occurred), and the requesting of a claim filing against any allegedly negligent Director or Commissioner.

As with general shareholder rights, the Articles of Association (AOC) of the company may alter some criteria – for example, the AOC could define the shareholder threshold to be lower than 10%.

 7. How ASK can help

ASK Consulting supports a number of investors across the region with Board advisory services:

• Identifying your suitable local partners and investors

• Government Liaison 

• Investment advisory

• Structuring

• Non-profit entity establishment 

• Agreement drafting

• License and permit process

• Initial Operational Support