Jurisdiction - Indonesia
Indonesia – Investment Coordinating Board (“BKPM”) Clarifies Application Of Negative List To Portfolio Investments.

29 November, 2013


Regulation No. 5 of 2013

The Indonesian foreign direct investment sector has been through much upheaval in the past year. One of the areas of uncertainty revolved around Regulation No. 5 of 2013 issued by BKPM in April 2013. This provided that a public company, including one constituted as a domestic direct investment company (a Perusahaan Modal Dalam Negeri, or “PMDN”), would with immediate effect be treated by BKPM as a foreign direct investment company (a Perusahaan Modal Asing, or “PMA”) if the controlling shareholder of such company is a non-Indonesian investor.

As a result, indirect and portfolio investments (i.e., investments made through the stock market) were expressly brought within the ambit of the Indonesian Negative Investment List, which sets out a range of sectors that are either closed to foreign direct investment or subject to various foreign ownership restrictions.

The effect of Regulation No. 5 of 2013 is demonstrated in the following example:

A publicly-listed, 100% Indonesian-owned PMDN operates in a sector that is closed to foreign investment under the Negative Investment List. More than 50 percent of the company’s shares are acquired by a non-Indonesian company through the stock exchange. In such circumstances, Regulation No. 5 of 2013 requires that the Indonesian company changes its status to become a PMA company. Therefore, the company would no longer be permitted to engage in its current business as it would be in contravention of the Negative Investment List.

Regulation No. 12 of 2013

In response to growing uncertainty over Indonesia’s short term economic climate, BKPM subsequently issued Regulation No. 12 of 2013 in September 2013 which provided that indirect and portfolio investments would be excluded from the Negative Investment List.


Nonetheless, it remains unclear whether the changes introduced by Regulation No. 12 of 2013 were intended to restore the position to that prior to the issuance of Regulation No. 5 of 2013, when the Negative Investment List was applied somewhat selectively to indirect and portfolio investments, or whether it signaled that BPKM would henceforth treat indirect and portfolio investments as being fully exempted from the Negative Investment List.

Following an inquiry by Assegaf Hamzah & Partners, the issue has now been clarified by BKPM, which has explained the changes introduced by Regulation No. 12 of 2013 to mean that :

(i) portfolio investments are governed solely by the Indonesian Capital Markets Act; and

(ii) a PMDN in which a controlling stake is acquired by a non-Indonesian entity through the stock market will no longer be required to convert to PMA status and accordingly is not required to comply with the Negative Investment List.

Concluding Words

This clarification will be warmly welcomed by members of the business community and legal practitioners alike as it brings to an end a protracted period of uncertainty over the status of investments by foreigners in Indonesian public companies. It remains to be seen whether BKPM will make any changes to its current position but for the time being, a much needed degree of certainty has been restored to the area of foreign direct investment in Indonesia.

Rajah & Tann


Goh Kian Hwee, Partner, Rajah & Tann

[email protected]

Cheng Yoke Ping, Partner, Rajah & Tann

[email protected]

Grace Chia, Partner, Rajah & Tann 

[email protected]

Corporate/M&A Law Firms in Indonesia

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