On 21 June 2017, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK“) issued OJK Rule No. 25/POJK.04/2017 on Restriction on Shares Issued prior to Public Offering (“New Rule“). The New Rule replaces Bapepam Rule No. IX.A.6 as attached to the decision of the Chairman of Bapepam No. Kep-06/PM/2001 on Restriction on Shares Issued prior to Public Offering.
The New Rule does not provide significant changes from the previous rule. However, OJK sets out administrative sanctions for any party breaching the New Rule and further specifies how the restriction is implemented.
An initial public offering (“IPO“) may be deemed as a preferred form of exit by private equity firms or founding shareholders due to favorable tax rates. Before a company undertakes an IPO, caution should be applied when it issues new shares or equity securities to any party (for example, its pre-IPO shareholders).
A party, that acquires equity securities from the company with a price, a conversion value or an execution price below the IPO share price during the period of 6 (six) months before the company submits an IPO registration statement to OJK, is prohibited from transferring a certain or an entire portion of ownership on such equity securities to other parties up until 8 (eight) months after the registration statement is declared effective by OJK as set out in the New Rule.
OJK further clarifies in the New Rule that although a shareholder may already own a certain portion of his total shares in the company before “the period of 6 (six) months” and he subsequently subscribes for the remaining shares with a subscription price lower than the IPO share price during “the period of 6 (six) months”, he must not transfer all those shares to other parties up until 8 (eight) months after the registration statement is declared effective by OJK.
The above restriction, widely known as a lock-up period, does not apply to ownership on equity securities either directly or indirectly by central government, regional government or authorized institution in a banking restructuring program under the prevailing laws and regulations (“Exempted Party“).
For the purpose of the IPO, the company must report the typical equity securities to OJK and disclose it in the IPO prospectus. The disclosure must include at least:
- the name of the holder of equity securities;
- the number of acquired equity securities;
- the value amount received by the company, form of payment and method of valuation;
- the transaction and/or exercise dates; and
- the transfer plan on the equity securities up until 8 (eight) months following the effective statement from OJK (only applicable for the Exempted Party).
Sanctions for Non-Compliance
The New Rule details the administrative sanctions which OJK can impose on parties that violate (including cause the violation of) the New Rule, which are:
- written warning;
- limitation of business activities;
- suspension of business activities;
- revocation of business license;
- cancellation of approvals; and/or
- cancellation of registrations.
Under the New Rule, fines, limitation and suspension of business activities, revocation of business license, and cancellation of approvals and registrations can be imposed with or without warning letters. Fines may be imposed separately, or cumulatively with other administrative sanctions as mentioned above.
Please note that OJK is also authorized to carry out certain actions like delaying the issue of an effective statement for public offering transactions.
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