Jurisdiction - Indonesia
Reports and Analysis
Indonesia: New BKPM Regulations And Effect On Foreign Controllers Of Indonesian Public Companies.

23 July, 2013



Indonesia's Investment Coordinating Board (known as "BKPM" in Indonesia) has recently issued a new regulation ("Regulation 5/2013") which imposes a new approval requirement for foreign investors looking to take a majority stake in listed companies.


Regulation 5/2013 provides that Indonesian public companies with a foreign controller (For the purposes of Regulation 5/2013, "Controller" is defined as a party that: (i) owns more than 50% of the total issued shares of the public company; or (ii) has the ability to determine, whether directly or indirectly, by any means whatsoever, the management and/or policy of the public company) will be "categorised" as a foreign capital investment (or using its Indonesian acronym, "PMA") company and such company must apply for and obtain prior BKPM approval for any change of its "controller". One of the main implications of being "categorised" as a PMA company is the application of the Investment Law and Negative List (containing the restrictions on foreign investment in certain sectors), which set out the underlying law and regulation that is administered by BKPM in relation to PMA companies.


Early feedback from BKPM suggests that Regulation 5/2013 will not be applied retrospectively, and hence our current view is that, in practice, the new requirement of "categorising" a public company as a PMA company in circumstances where it has a foreign "controller" is more likely to be triggered where there is a subsequent change of "controller" of the public company. These scenarios will need to be looked at carefully on a case-by-case basis going forward.


Another key effect of Regulation 5/2013 is the requirement for a domestic capital investment company (or using its Indonesian acronym "PMDN"), which is converting to PMA status, pursuant to a change in share ownership resulting in some or all of its shares being owned by foreigners to also list out and eventually convert all of its subsidiaries to PMA status.


There are currently many uncertainties surrounding how Regulation 5/2013 will be implemented in practice and it remains to be seen how it will be interpreted by BKPM and the effect this will have on foreign investment in Indonesia. However, it is likely that the new regulation may result in an increased involvement of the target company in Indonesian public company deals and this should be factored into the timing of implementing such deals. It is also possible that the new regulation may result in an increased number of offshore deals or acquisitions of minority stakes with limited obvious control rights involving public companies to avoid triggering a "change of control". These are trends we have been seeing more of in relation to Indonesian public companies in any event.


For further information, please contact:

Michael Walter, Partner, Herbert Smith Freehills


David Dawborn, Partner, Herbert Smith Freehills


Veronica O'Shea, Partner, Herbert Smith Freehills


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