The New Draft of Negative List of Investment in Indonesia

0511-0701-3118-0933_Businessman_Reading_from_a_Long_List_Papers_clipart_imageI attended briefing meetings of the new draft of Negative List of Investment in Indonesia couple weeks ago. Mr. Gita Wirjawan, the Head of Coordinating Investment Body of Indonesia (“Badan Koordinasi Penanaman Modal or BKPM”)  gave insight overview on the said draft. He stated that the new negative list of investment will be issued soon.

The new draft of Presidential Regulation on Negative List comprises of some provisions of Presidential Regulation No.77/2007 and No.111/2007 that are still deemed relevant and new articles.

This regulation clearly stipulates that Negative List is not applied to indirect investment or portfolio investment through a transaction made in the domestic stock exchange.

Further, the Grandfather clause will come into force for mergers and acquisition in the same business fields. This new regulation will not apply to any investment that was approved by the Government prior to the stipulation of this regulation. The exemption is when the new provision is more beneficial for the pertinent investor.

The expansion of business in the same business fields with different location is not required to establish a new business entity or obtain new business permit, except it stipulated specifically by the Law. This provision should make it easier for investor to expand their business activity in the same business field.

This regulation stipulates a new provision on rights issues and treasury stocks. Business expansion in the same business fields which require additional capital through the issuance of new shares (right issues):

(1) Foreign investor has pre-emptive rights since domestic partner cannot participate in the capital increment.

(2) In the event the foreign capital exceeding the limitation of foreign capital in its Approval Letter (“BKPM Approval”) , within 2 years of the limitation must be adjusted back down to the required maximum foreign ownership as mentioned on the Approval Letter, through finding another domestic investors, selling the shares through domestic stock market, and buying back the excess shares as treasury stock pursuant to Article 37 Company Law.

Excerpt Article 37 Company Law:

Article 37 Repurchase of Shares

(1) Limitations‎ A Company may repurchase the shares which have been issued, provided that: a. the share repurchase does not render the Company’s net assets less than the capital subscribed for and the statutory reserve that have been allocated; and‎ b. the total nominal value of all shares repurchased by the Company or the fiduciary encumbrance of shares held by the Company itself and/or other Company which shares directly or indirectly are owned by the Company shall not exceed 10% (ten percents) of the capital subscribed for the Company, unless provided otherwise by the prevailing laws and regulations in the area of capital market.‎

(2) Void by Law‎ A repurchase of shares, directly or indirectly, which is in contrary to the stipulation in paragraph (1) is void by law.

(3) Directors’ Liability‎ The Board of Directors are jointly and severally liable for all losses suffered by the shareholders who acted in good faith, which is caused by the lawful nullification of the share repurchase as referred to in paragraph (2). (4) Three Years Maximum‎ Shares repurchased by the Company as referred to in paragraph (1) may be held by the Company only for a maximum of three (3) years.

This regulation will supersede both President Regulation No.77/2007 and No.111/2007.

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