Energy & Infrastructure M&A 2024 Comparisons

Over the past 12 months, the energy and infrastructure M&A market in Indonesia has shown a noticeable shift, particularly driven by the global transition towards renewable energy. Compared to a year ago, deal activity in the energy and infrastructure sectors has been robust, as the country pushes forward with its green energy goals and sustainability initiatives. A significant part of this momentum has been fuelled by an increasing number of renewable energy projects, with sectors like solar, wind, and hydro seeing heightened interest from both local and international investors seeking to participate in Indonesian renewable energy projects by way of share or asset acquisitions.

Green financing has played a critical role, with more project financings and sustainability-linked investments being deployed to support these renewable ventures. This shift towards greener projects reflects Indonesia’s commitment to reducing carbon emissions and aligns with the growing emphasis on ESG considerations. We have seen several renewable projects financed by project financings and sustainability-linked loans from local and international lenders.

Global uncertainties, such as the ongoing wars in Ukraine and Gaza, have certainly impacted the financing markets. However, despite these challenges, the energy and infrastructure sectors in Indonesia have shown resilience. Renewable energy projects have remained attractive to investors, as they align with long-term sustainability goals and are often backed by government support and favourable policies.

When comparing Indonesia’s M&A activity in the energy and infrastructure space to global trends, the country has mirrored the global shift towards renewables, although the pace of activity has been steady rather than rapid. While some global markets have experienced a slowdown due to geopolitical tensions and financing challenges, Indonesia’s push towards renewable energy has kept deal activity relatively strong. Nonetheless, the local market is not entirely immune to global pressures, and while the pace of M&A activity has not outpaced the global rate, it has maintained a healthy level of interest, particularly in green energy projects.

Indonesia has made significant strides in improving its business environment in recent years. In 2020, Indonesia ranked 73rd out of 190 economies in the World Bank’s Ease of Doing Business index – a substantial improvement from 155th in 2015 (see: World Bank, Economy Profile in Indonesia, 2020). This progress has been driven by reforms, including the launch of the Online Single Submission (OSS) system which streamlines the business licensing process. As a result, Indonesia is now more attractive to foreign investors and encourages entrepreneurs to establish companies, contributing to its dynamic and growing market.

The incorporation process of a new company in Indonesia can be generally categorised into two phases: the preparation and the implementation phases. The implementation phase is relatively straightforward because the formation of a limited liability company (LLC) only requires a deed of establishment (DOE) made before a public notary and signed by the founders, and the registration of such DOE with the Indonesian Ministry of Law and Human Rights (MOLHR). The registration process typically takes approximately 10-14 calendar days.

The preparation phase, however, tends to be more complex, particularly if a shareholders’ agreement (SHA) is involved. An SHA governs the relationship between the founders and sets out the operational structure of the LLC. The form and negotiation of an SHA depend on various factors, such as whether the company is a joint venture or wholly owned, whether it will serve as a holding or operating company, and the specific lines of business it will pursue.

A joint venture often requires intensive negotiation between founders to reach mutual agreement on the SHA, in contrast to a wholly owned company, which may not need an SHA at all. An SHA for a holding company is generally more straightforward in its terms and conditions, while an SHA for an operating company often includes detailed technical, operational, and financial commitments from each founder. This is especially true in sectors like energy and infrastructure, which are known for their high capital requirements.

From a cash management perspective, a foreign investment company is subject to a minimum investment requirement of more than IDR10,000,000,000 (excluding land and buildings) for each 5-digit business code per project location, and also subject to a minimum paid-up and issued capital of at least IDR10,000,000,000.

The most common type of initial incorporation in Indonesia is an LLC, due to the legal protection it provides to shareholders. Although termed an “LLC”, the Indonesian LLC is actually closer to the concept of a corporation in common law jurisdictions. An Indonesian LLC is treated as a legal person, which means it has its own legal authority and capacity to act independently for its own benefit, carrying out its business in line with legal regulations and its constitutional documents. This framework considers the LLC a separate legal entity, distinct from its shareholders or founders, thereby limiting their liability. The doctrine of “piercing the corporate veil” applies here, meaning shareholders are generally not liable for any losses or damages incurred by the LLC unless specific conditions are met. These include (i) failure to meet the LLC’s requirements as a legally incorporated entity; (ii) direct or indirect use of the LLC for personal interests, in bad faith, by the shareholder; (iii) involvement of the shareholder in unlawful actions conducted by the LLC; or (iv) the shareholder’s direct or indirect unlawful depletion of the LLC’s assets, resulting in the LLC’s inability to meet its debt obligations.

Early-stage financing in Indonesia is generally not tailored to support large energy or infrastructure projects, as these typically do not align with the investment thesis of seed investors. Seed investments tend to focus on start-ups, particularly in the technology sector – such as financial technology, e-commerce, consumer goods, education, and artificial intelligence. Large-scale energy and infrastructure projects, however, operate on a vastly different scale and demand a unique financing approach. In Indonesia, such projects are generally led by major players, including state-owned enterprises (SOEs) and large Indonesian conglomerates, as these ventures require substantial capital outlays that fall outside the typical start-up playbook. In cases where start-ups do engage in the energy sector, they are usually involved in smaller-scale renewable energy projects, like solar or mini-hydro power, which are more manageable in scale and require less capital than traditional large-scale power generation.

Large energy and infrastructure projects are primarily funded through project financing, often secured from foreign lenders who form consortia or syndicates to meet the considerable funding requirements. Non-recourse financing is a common method, allowing lenders to rely predominantly on the cash flow and assets of the financed project for repayment, rather than on the borrower’s personal assets. Asset-based security agreements and pledges offer additional protection for lenders by using project assets as collateral. Additionally, sponsors or shareholders may provide support through guarantees, capital injections, or other non-financial commitments. To ensure clarity and consistency in these complex multi-party transactions, standardised loan agreements, such as those under the APLMA (Asia Pacific Loan Market Association) and CTA (Common Terms Agreement) frameworks, are frequently utilised. This comprehensive approach helps lenders mitigate risks, making it feasible to finance large and complex projects.

Since 2023, Indonesia has experienced a “tech winter”, where the once-booming start-up sector has seen a sharp decline in growth, massive layoffs, and even closures. This slowdown is largely attributed to global economic uncertainty and the aftermath of the COVID-19 pandemic, which have led investors to become more cautious and selective with their funding. As a result, many start-ups have struggled to maintain the momentum they once had.

However, not all sectors have experienced a downturn. The energy and infrastructure sectors, particularly projects related to renewable energy, have continued to attract strong interest and funding. These are essential sectors, and with the global shift towards sustainability, green funds have become increasingly available to support such projects. In fact, project financing in these areas remains robust, driven by the growing demand for renewable energy initiatives and large-scale infrastructure developments.

While traditional M&A activity in the energy sector may not involve as much financing compared to other deals, larger and more complex projects, such as the planned early retirement of coal-fired power plants (CFPP), are actively being considered and require substantial financing solutions. These types of initiatives, which aim to accelerate the transition away from coal, involve intricate funding mechanisms, including international financial backing. Discussions regarding the financing of these projects are intensifying as stakeholders recognise the importance of de-risking large-scale transitions to cleaner energy.

Lenders continue to back these projects, making use of diverse financing structures like non-recourse loans and asset-backed securities to mitigate risk. This difference in funding trends underscores the resilience of primary sectors like energy and infrastructure.

Financial Services Authority (OJK) Regulation No 25 of 2023 sets out comprehensive guidelines for the management and operation of venture capital companies (Perusahaan Modal Ventura, or PMVs) in Indonesia, including those that follow Sharia principles. The regulation is aimed at strengthening governance, ensuring these companies adhere to sound financial practices, and enhancing transparency in their investment activities. It emphasises better risk management and clearer roles for shareholders, helping to create a safer and more accountable investment environment.

It is important to note that this regulation specifically applies to PMVs, which operate differently from traditional venture capital (VC) firms. Traditional VCs in Indonesia are usually just shell companies and therefore not subject to OJK regulations. Traditional VCs in Indonesia operate more like private equity, where investors and funds are often managed outside of strict local supervision, allowing them to be more agile in how they manage their investments and risk.

Start-ups will typically remain in the form of an LLC. In Indonesia, it is very uncommon to change the corporate form to another form, such as a partnership. It is common for start-ups to launch an IPO and become a publicly listed LLC, although this of course depends on the exit strategy of investors and founders.

In Indonesia, when start-up investors are looking for a liquidity event, they usually lean more towards a sale process (like M&A) rather than going straight for an IPO or listing on a stock exchange. This is mainly because Indonesia’s capital markets, although growing, are not as developed as in countries like the United States. Going the IPO route tends to be more complicated and time-consuming, making a sale process the simpler and quicker option for many.

The idea of a dual-track process, where a company explores both an IPO and a sale through M&A at the same time, is not as common in Indonesia as it is in more mature markets. That being said, we have seen a few notable examples in recent years, especially in the tech sector. For instance, before Gojek and Tokopedia merged to form GoTo in 2021, both companies were considering launching their own IPOs. Tokopedia even explored listing options on both the Indonesia Stock Exchange (IDX) and in the USA, including the possibility of a SPAC listing. At the same time, they were also evaluating M&A opportunities, resulting in a merger between the two companies. This was followed by GoTo’s IPO on the IDX in April 2022.

However, this dual-track strategy is still quite rare in industries like energy and infrastructure. In fact, IPOs and listings for energy companies in Indonesia have been growing at a much slower pace compared to the rapid rise in such listings in the technology sector. This difference mainly comes down to investor preferences and market dynamics. Additionally, the regulatory and environmental challenges facing energy companies add further complexity to IPO growth. In Indonesia, energy firms must also deal with complicated regulatory hurdles, making the prospect of going public even more difficult.

Dual listings in Indonesia, where a company is listed on both the IDX and a foreign exchange, are permitted. A dual listing might be more attractive to companies seeking both local and global capital. When an Indonesian company decides to list, the choice between the IDX, a foreign exchange, or both depends on factors like size, sector, growth potential, and investor base. For example, businesses focused primarily on the domestic market often favour the IDX for its simpler regulatory framework and access to local investors. Ultimately, the decision depends on the company’s growth strategy, regulatory comfort, and target investor base.

Indonesia’s regulatory framework still does not regulate a squeeze-out mechanism.

In Indonesia, the sale process for an energy or infrastructure company is more commonly conducted through bilateral negotiations with a chosen buyer, rather than a formal auction. Given the strategic nature of these sectors and the complexities involved – such as regulatory considerations, long-term contracts, and potential government or SOE involvement – sellers often prefer negotiating directly with a carefully selected buyer. This allows for more tailored discussions, ensuring that the buyer has the financial capacity, technical expertise, and regulatory approvals required for a smooth transaction. Additionally, energy and infrastructure deals often involve SOE or large institutional investors, further incentivising bilateral negotiations to address specific concerns or regulatory hurdles early on.

However, in some cases where a seller wants to maximise value or attract a wider range of offers, an auction process may be considered. This is more likely if the asset is highly attractive or if there is competitive interest from multiple parties. We have seen this recently with auctions for geothermal and wind assets, where the wind assets successfully attracted buyers while the geothermal assets struggled to generate interest. Nonetheless, the energy and infrastructure sectors typically favour bilateral negotiations for their more controlled and strategic nature.

VC funds typically do not invest in energy and infrastructure companies as these projects are notorious for their high capital requirements. However, in cases where VC funds invest in energy and infrastructure companies, their exit strategy typically depends on the initial arrangement with the sponsors and their investment thesis. After all, VC funds are financial investors and not operators; they do not possess the technical expertise to run and operate a project company, so they typically join hands with those who do. If the operating sponsors are looking for exits and have found a potential buyer, VC funds will typically conduct due diligence and background checks on the buyer to ensure that the buyer has the capacity to continue running the project company in the right direction. If the due diligence and background checks are not satisfactory, VC funds typically exercise their tag-along rights and exit alongside the selling shareholders.

In Indonesia’s energy sector, most company transactions are typically conducted as full cash sales. Stock-for-stock deals, where shareholders receive shares of the acquiring company, are less common due to regulatory complexities and market preferences.

In Indonesia, key founders are generally expected to stand behind representations and warranties and certain liabilities after closing, but this may not be the case for VC investors. VC investors typically limit their liability to the extent of their financial commitment, but will not take on any legal exposure. Indemnification provisions are commonly included in transaction agreements to protect the parties from potential breaches. It is also customary to use escrow accounts or holdback mechanisms, where a portion of the purchase price is withheld for a specific period to cover any indemnification claims that may arise. However, representations and warranties insurance is not yet widely adopted in Indonesia, although its usage is gradually increasing as the market becomes more sophisticated.

Under Indonesian law, a spin-off refers to the transfer by law of part of the assets and liabilities of the transferring company to one or more companies. Spin-offs have become increasingly common in the energy and infrastructure sectors in Indonesia, primarily driven by commercial considerations, such as corporate reorganisation, streamlining or realignment of the business portfolio.

A spin-off is particularly attractive in scenarios where a company seeks to transfer assets and liabilities from one entity to another as part of an internal restructuring process. Unlike other methods of asset transfer, such as business transfers, a spin-off provides a comprehensive solution because it allows for the automatic legal transfer of both assets (activa) and liabilities (passiva) by operation of law. This means that the entire balance sheet of the spun-off entity can be transferred in a single transaction, which is both time-efficient and legally straightforward.

In contrast, a business transfer requires a more complicated process, where each asset and liability must be individually transferred, which can lead to delays and increased administrative complexity. Because of these advantages, spin-offs are often the preferred method when companies in the energy and infrastructure sectors need to restructure or refocus their operations. They allow for a smoother transition of business units, minimise disruption, and help companies align their asset portfolios with their strategic goals, making the process more efficient and less burdensome than alternative methods.

Spin-offs in Indonesia cannot be structured as a tax-free transaction. However, some specific spin-off transaction can potentially be structured to reduce tax liabilities provided that they meet certain key requirements under the applicable tax regulations. According to Minister of Finance Regulation No 52/PMK.010/2017 as amended by subsequent regulations, asset transfers in mergers, consolidations, or spin-offs must generally use market value, which can result in higher tax obligations. However, if specific criteria are met, taxpayers may apply to use the book value for asset transfers, which may reduce tax liabilities.

To qualify for the above, the company must obtain approval from the Director General of Taxes to use the book value instead of market value. Key requirements include that the spin-off must involve the transfer of assets and liabilities between domestic corporate taxpayers, and it must not result in the liquidation of the original entity. Additionally, the spin-off must be part of a corporate restructuring involving SOEs and must obtain approval from the Minister of SOEs. Although the regulation is only applicable to SOEs, there is room to argue that a subsidiary of an SOE could qualify if the spin-off is related to an SOE restructuring. In such cases, consulting with a tax adviser is recommended to ensure compliance with the tax regulations.

There is no restriction on a spin-off being immediately followed by a business combination. The key requirements will be subject to the typical requirements for the relevant transaction under the Company Law.

In Indonesia, the timeline for a spin-off is typically similar to the timeline for mergers, consolidations, and acquisitions, as there are no specific regulations governing spin-offs under the Company Law. The first step is the preparation phase, where the company’s BOD must prepare and announce the spin-off plan. This announcement must be made in a nationally circulated newspaper and to the company’s employees at least 30 days before the GMS is called. During this period, creditors have 14 days from the announcement to file any objections. If no objections are raised, or if any objections are resolved, the company can proceed with the spin-off. The GMS, which is responsible for approving the spin-off, must be called at least 14 days before the meeting. However, to expedite the process, shareholders can opt for a circular shareholder resolution, where all shareholders approve the spin-off in writing, which eliminates the need for a formal GMS.

Once the spin-off is approved by the GMS (or via a circular shareholder resolution), the next step is to formalise the spin-off into a notarial deed. This document must be signed by the parties involved in the spin-off, namely the transferor and transferee entities. Afterward, the notary will submit the notarial deed to the MOLHR for ratification. The MOLHR’s approval or notification is required to complete the legal process of the spin-off. This phase typically takes one to two weeks.

If the spin-off transaction is eligible to use the book value for an asset transfer spin-off under PMK 56, approval from the Director General of Taxes is required. The time needed to obtain this tax ruling can vary, but it typically adds several weeks to the overall timeline, depending on the complexity of the transaction and the responsiveness of the tax authorities.

In total, without the need for a tax ruling, the entire spin-off process, including preparation, GMS approval, and regulatory ratification, can take approximately one to three months. However, if a tax ruling is required, the process may extend to three or four months or more, depending on how long the tax authorities take to grant approval.

It is not customary to perform stakebuilding in Indonesia.

In Indonesia, if an acquisition results in a change of control in a public company, the buyer is generally required to make a mandatory tender offer (MTO) for the remaining shares held by the public, unless certain exemptions apply. These exemptions include:

• shares owned by the selling shareholder(s);
• shares owned by another party(ies) that the acquirer has offered to purchase under the same terms and conditions;
• shares owned by other parties that are also undertaking a (different) tender offer on the shares of the  target company (a competing tender offer);
• shares owned by the principal shareholder(s), namely shareholders directly or indirectly holding 20% shares of the public company; and
• shares owned by other controlling shareholders of the target company.

The MTO process must begin within two business days of the takeover announcement, following the regulations outlined in OJK Regulation 9/2018 on Acquisitions for Public Company.

An MTO is not applicable for M&A transactions involving a private LLC.

In public company acquisitions in Indonesia, the most common approach is direct purchase of common shares from existing shareholders. The M&A landscape in Indonesia remains relatively straightforward, lacking the sophisticated hostile takeover mechanisms often employed by major Western players.

In Indonesia’s M&A market, cash is typically the preferred method of payment, particularly for direct acquisitions or when purchasing new rights from public companies. For acquisitions, the payment can be made in either cash or assets (in-kind contribution). When purchasing shares directly from existing shareholders, buyers can offer either cash or stock consideration, with stock offerings taking the form of newly issued shares or share swaps with another entity within the buyer’s group.

To ensure fairness, pricing typically relies on valuations conducted by independent third-party appraisers. In share swap transactions where valuations differ, the parties must reach an agreement on how to handle the discrepancy. The standard practice is for the party holding the lower-valued assets to compensate the other party for the difference in value.

Takeover offers typically come with conditions such as securing government approval, issuing mandatory newspaper announcements, and meeting other legal obligations. There are no limitations on the types of conditions that can be included in these offers.

Aside from an MTO, OJK also governs the concept of voluntary tender offers (VTOs), where a VTO is defined as an offer made voluntarily by a party to acquire equity securities issued by a target company, through purchase or exchange with other securities, using mass media. Unlike an MTO, which is a required action, a VTO is initiated by a party based on their own decision. This process involves submitting a proposal to the OJK, disclosing the offer’s details, including the purchase price and objectives, and ensuring the transparency of the tender. The VTO aims to enable the offering party to gain control over the company by acquiring a significant number of shares.

For a VTO, while the acquirer can set additional terms beyond those required by the authorities, the regulations do not define specific criteria. Hence, it is recommended to consult with the OJK to clarify any additional conditions that may apply, especially if the terms can be perceived as hostile to the public shareholders.

It is customary in energy M&A transactions to enter into a transaction agreement when there is a takeover offer or business combination. This agreement lays out the terms and conditions of the deal, providing clarity and legal certainty for both the acquiring company and the target company. The target company can undertake several obligations in the transaction agreement. One common obligation is granting the acquirer access to necessary information for due diligence. This allows the acquirer to thoroughly assess the target company’s financials, operations, and potential risks.

Another typical obligation is agreeing to operate the business in the ordinary course until the transaction is completed. This means the target company commits to maintaining its usual business activities and not making any significant changes that could affect its value. The target company may also assist in obtaining necessary regulatory approvals by providing required documents and information to authorities. If shareholder approval is needed, the company would facilitate shareholder meetings and provide relevant information to secure their consent.

Regarding representations and warranties, it is customary for a company to provide these in a transaction agreement. These representations and warranties might cover aspects like confirming the company is legally established and has the authority to enter into the transaction, assuring that financial statements are accurate, and stating that the company is in compliance with relevant laws and regulations. They may also include disclosures about significant contracts, assets, or any ongoing legal proceedings that could affect the company.

The Company Law does not specifically define “control”, but in the context of an MTO, “control” typically refers to ownership of a simple majority equity (more than 50% of shares).

However, unlike the United States, an MTO in Indonesia does not require a minimum acceptance condition. This is because bidders are only obligated to make an offer once they have already secured a controlling interest in the company. At that stage, they are required to purchase shares from all eligible minority shareholders, meaning the concept of a minimum acceptance threshold does not apply since the offer must include all minority shareholders.

There is no formal regulatory structure in place for squeeze-out mechanisms in Indonesia, which involve the compulsory purchase of minority shareholders’ shares after a successful tender offer or turning a public company into a private one.

Indonesian M&A transactions do not typically rely on acquisition financing, and it is highly uncommon to launch a takeover offer.

Particularly in sectors like financial services, the Indonesian OJK requires the buyer to self-fund the acquisition, rather than relying on external loans. This rule is in place to ensure that companies entering the financial sector are financially stable and well capitalised, which helps prevent potential collapses that could ripple through the tightly regulated industry.

In Indonesia, deal protection measures are allowed but not widely used. For instance, a protective measure is the no-shop clause, which prohibits the target company from soliciting or engaging with other potential buyers for a defined period. This provision ensures that the acquirer has an exclusive opportunity to complete the deal without interference from competing offers. In some agreements, a no-talk clause may also be included, further restricting the target company from even discussing potential deals with other parties.

The target company may also grant matching rights to the acquirer. If a third party presents a better offer, the acquirer has the right to match or exceed this new offer within a specified timeframe. This provision gives the acquirer a fair chance to remain competitive and secure the deal despite emerging rival bids.

A bidder does not need to acquire 100% ownership of a company to gain significant control. Under Indonesian Company Law, the majority of important corporate decisions made at the GMS only require approval from a simple majority, while some may require 66.6% or 75% of shareholder votes. This means that, in most cases, having just a simple majority shares can provide enough influence to guide key decisions, allowing a shareholder to exercise considerable control even without full ownership.

Additionally, a shareholder can enhance their control by negotiating a reserved matters arrangement, which grants them the right to veto or approve certain key actions, even if they hold a minority stake.

Control over the company can also be obtained by securing influence over the board of directors, typically by gaining the right to nominate a majority of the board members or key individuals, such as those overseeing the company’s finances, or even the president director as the key authorised signatory with daily management authority. Although the board of commissioners plays a more supervisory role compared to the board of directors, having the ability to appoint members to this board can further strengthen a shareholder’s governance rights.

In Indonesia’s M&A landscape, transactions are predominantly shareholder-driven, with the shareholders themselves typically initiating and leading negotiations with potential buyers. While it is legally permissible for buyers to negotiate directly with the limited liability company through its directors, this approach is uncommon in practice.

Given this shareholder-centric approach, the practice of securing irrevocable commitments from non-selling shareholders (whether principal or otherwise) rarely occurs. Instead, commitments come directly from the selling shareholders, who bear the responsibility of ensuring that non-selling shareholders will not obstruct the transaction by withholding necessary shareholder approvals.

In Indonesia, a tender offer must be reviewed by the OJK before it can proceed, and the offer price and terms must be approved. The timeline for review varies, as regulations do not specify how long the OJK can take to provide feedback. Once the OJK grants approval, the MTO period lasts 30 days. If a competing offer arises, the timeline may be adjusted accordingly to account for the new bid.

In Indonesia, the timeline for an MTO can be extended if approvals are not obtained before the offer period ends. If approvals are delayed, the offer can be postponed, allowing more time for the necessary permissions. Typically, regulatory approvals are sought after announcing the offer but before launching it. This ensures compliance and the smooth execution of the takeover. The process involves key steps, such as securing approval from the OJK and other relevant authorities before proceeding with the MTO.

The establishment of companies in Indonesia is governed by the same core legal frameworks that apply across all industries, including the Company Law, Government Regulation No 5 of 2021 on Risk-Based Business Licensing, and PR 10/2021. These regulations outline the general requirements for establishing a business that must be followed.

If the partner in establishing the company is an SOE or companies within the SOE Group, additional considerations must be considered for the regulations that apply specifically for SOEs, such as the SOE Moratorium, which restricts the creation of new joint ventures or subsidiaries involving SOEs.

For obtaining basic licenses, the OSS system is typically used in Indonesia to streamline business licensing processes. However, for companies operating in the energy sector, additional permits are usually required, as this industry is highly regulated. Depending on the nature of the business, approvals may be needed from various regulatory bodies, such as the Ministry of Energy and Mineral Resources (MEMR) or the Ministry of Public Works and Housing for construction-related projects.

In terms of obtaining the necessary business permits and approvals, timelines can vary widely depending on the sector, the complexity of the project, and the specific permits required. While some basic licenses can be processed quickly through the OSS system (namely, business identification number, conformity of space utilisation activities), sector-specific licenses may take longer due to additional layers of regulatory oversight and numerous required documents/activities (namely, power companies will need (i) a signed power purchase agreement to apply for an electricity supply business license or (ii) to successfully pass the commissioning tests of their power generation facilities to obtain a certificate of operational worthiness). It is common for the process to take several months, especially for projects in highly regulated industries like energy.

In Indonesia, several key regulatory bodies are involved in M&A transactions. The MOLHR serves as the primary regulator, ensuring compliance with corporate laws and legal frameworks in the formation of LLCs. For investments, the Investment Coordinating Board (BKPM) plays a crucial role, particularly in facilitating and regulating foreign and domestic investments within M&A deals. OJK is responsible for overseeing M&A transactions that involve public companies or financial service institutions, ensuring proper regulation of public offerings and financial sector transactions. Additionally, the Indonesian Competition Commission (KPPU) monitors M&A activities to prevent monopolistic practices and maintain fair competition within the market.

Since the issuance of the Job Creation Law and its implementing regulations, the Indonesian government has significantly opened up many sectors that were previously restricted to foreign investors. Currently, most business sectors are open to foreign investment, with exceptions limited to specific closed sectors or those requiring special conditions. This shift in policy primarily targets the establishment of joint venture companies, or foreign investment companies.

One of the key measures introduced is the “one-door policy” for setting up a PMA company, which is facilitated through the OSS system, making the filing process more efficient. According to Presidential Regulation No 10 of 2021 on Investment Business Activities (PR 10/2021), the Indonesian government has affirmed that all business sectors are generally open for investment, except for two main categories: sectors that are explicitly closed for investment and activities reserved exclusively for the central government.

PR 10/2021 also classifies business sectors into four categories that are open to investment:

• priority business fields;
• sectors that require partnerships with co-operatives or micro, small, and medium-sized enterprises;
• sectors that are open subject to specific requirements; and
• business fields outside of such categories, which are open to all investors.

As regards the above, the sectors that are fully closed to foreign investment in Indonesia are as follows:

• the cultivation and processing of Class I narcotics;
• gambling and casino operations;
• fishing of endangered species listed under Appendix I of the CITES convention;
• the collection or use of coral for construction, aquariums, and souvenirs, including live or recently deceased coral;
• the manufacture of chemical weapons;
• production of chemicals that damage the ozone layer; and
• industries involving alcohol-containing liquor, wine, and malt-based beverages.

In Indonesia, there is no formalised or standalone national security review mechanism like that of the Committee on Foreign Investment in the United States (CFIUS) in the United States. Furthermore, regarding specific restrictions for investors from particular parts of the world, Indonesia does not impose explicit prohibitions based solely on an investor’s country of origin. The restriction for foreign investment is already minimised in PR 10/2021. Please refer to our response in 7.3 Restrictions on Foreign Investments.

Indonesia does have export control regulations, though they are not as stringent or as formalised as those in some other countries like the United States. Typically, the Indonesian government performs export control by restricting exports of specific types of products, such as nickel ore.

The basic antitrust filing requirements for corporate transactions in Indonesia are outlined under KPPU Regulation No 3 of 2023, Regarding the Assessment of Mergers, Consolidations, or Acquisitions of Shares and/or Assets That May Result in Monopolistic Practices and/or Unfair Business Competition (KPPU Reg 3/2023). Companies must notify the KPPU of transactions if they meet certain criteria, namely:

• hitting certain asset and/or sales value thresholds;
• change of control;
• transactions that are not classified as transactions between affiliated actors; and
• transactions between actors that own assets and/or make sales in Indonesia.

Additionally, any asset acquisition that enhances the buyer’s market control, unless specifically exempt, also requires notification. Transactions between affiliated parties are also not subject to these filing requirements.

Based on the above criteria, a post-merger filing is mandatory if the transaction meets the threshold or control tests. It is also important to note that the method to calculate the thresholds for filing the KPPU notification under KPPU Reg 3/2023 is quite different from the previous calculation method set out under KPPU Reg 3/2019, with KPPU Reg 3/2023 referring only to assets and sales in Indonesia.

Under the threshold test, a filing is required if the combined asset value exceeds IDR2.5 trillion or the combined sales value exceeds IDR5 trillion. In addition, the control test mandates a filing if the acquirer or surviving entity holds more than 50% of the company’s shares or voting rights, or if it holds 50% or less but still has the ability to influence the company’s management or policies.

If filing with the KPPU is required, it should be submitted, at the latest, 30 days after the transaction is legally effective. For transactions that are carried out outside the jurisdiction of Indonesia, based on Article 4(1) of KPPU Reg 3/2023, such date refers to (i) the date the transaction agreement was signed; (ii) the date of transaction closing; or (iii) the date of government approval. Furthermore, according to Article 4(2) of KPPU Reg 3/2023, if a transaction has multiple legal effective dates, the latest date is used for KPPU assessment purposes. It should also be noted that under KPPU Reg 3/2023, notification filing is now submitted electronically through the KPPU’s official platform, replacing the previous process that required forms to be mailed.

Acquirers must be aware of specific labour law regulations when performing corporate transactions, particularly regarding employee notification and compensation. According to Article 127(2) of the Company Law, companies planning an acquisition must notify employees in writing at least 30 days before the GMS discusses the acquisition. In practice, employees who object to the acquisition may choose to resign.

In such cases, the company must prepare compensation packages for the employees based on the prevailing laws and also any specific or additional compensation governed in the company regulations or  collective labour agreement (where applicable).

In cases where an acquisition leads to layoffs, compensation is required under Government Regulation No 35/2021 on Fixed-Term Employment Agreements, Outsourcing, Working Time and Rest Time, and Termination of Employment (GR 35/2021). Based on Article 42 of GR 35/2021, the compensation provisions for employees related to acquisitions are as follows:

• If the layoff is initiated by the company, the compensation is 1x severance pay, 1x long service award, and compensation pay, with details of the calculation as stipulated in Article 40 of GR 35/2021.
• If the termination is initiated by the employee, the compensation is 0.5x severance pay, 1x long service award, and compensation pay, with details of the calculation as stipulated in Article 40 of GR 35/2021.

In practice, these compensation packages can have a significant impact on the proposed acquisition and must be factored into the transaction value or documented in the transaction agreements. The cost of covering these employee compensation obligations can be substantial, and there is no guarantee that employees will not exercise their right to termination and receive the associated compensation.

It is important to note that labour consultations, such as through a works council or union, are not mandatory in the context of acquisitions, and their advice is not binding on the company’s board. Any labour-related issues must be addressed in line with both the applicable collective labour agreement and labour regulations.

In Indonesia, no central bank approval is required for M&A transactions.

In recent years, many equity investors have pursued opportunities in Indonesia’s energy and infrastructure sectors by acquiring shares in project companies. However, strict regulations typically prevent shareholders from transferring/selling shares until the project reaches its commercial operation date (COD). For instance, in the power sector, MEMR Regulation No 48 of 2017 restricts companies holding an Electricity Supply Business License (IUPTL) from transferring shares before the COD, unless to an affiliate with more than 90% ownership, and subject to PLN approval. In the infrastructure sector, MNDP Regulation No 7 of 2023 requires public-private partnership (PPP) agreements to restrict share transfers before the COD, unless approved by the Government Contracting Agency (GCA) and without causing delays to the project.

If the M&A is carried out through a bid or auction, the initiator of the bid must provide the same information to all bidders to ensure fairness. The company is entitled to determine the scope of documents and information that can be disclosed to the bidders for due diligence purposes.

As a consequence of the issuance of Law No 27 of 2022 on Personal Data Protection (the “PDP Law”), all companies, as personal data controllers, are subject to data protection measures governed under the PDP Law. While not specifically restricting the due diligence process of an energy M&A, companies must ensure that they have valid grounds to perform the due diligence process as governed under the PDP Law. The PDP Law stipulates the following valid grounds for personal data processing:

• valid approval or consent (either in writing or recorded) given explicitly by the subject for one or more set purposes which have been notified by the controller to the subject;
• the satisfaction of obligations under an agreement where the subject is a party to the agreement, or where the subject’s request will be satisfied upon the subject entering into an agreement;
• compliance with the controller’s legal obligations;
• the protection of the subject’s vital interests relating to his/her life and survival;
• the implementation of public interest or public service duties, or implementation of the duties of authorities of the controller pursuant to laws and regulations; and/or
• the satisfaction of other valid interests by taking into account the purposes and needs, and balancing the controller’s interests and the subject’s rights.

Aside from that, companies must also ensure the security of the personal data during the due diligence process as governed under the PDP Law.

There are no specific regulations governing the public announcement of M&A bids in Indonesia. However, as bidders typically aim to reach the widest possible audience, they often utilise nationally circulated newspapers, company websites, and word-of-mouth to publicise their offers.

The Capital Market Law requires a prospectus for any public offering, which is when a company sells shares or other securities to the public. The prospectus provides important information for potential investors to help them make informed decisions. It must include details like the offering period, how the money raised will be used, the company’s financial situation, risks involved, and key company information. It also includes legal opinions, financial statements, and instructions on how to buy the shares. The goal of the prospectus is to ensure transparency and protect investors by providing all the necessary facts about the offering.

There is no general requirement to provide financial statements in most cases. However, winning bidders are typically expected to demonstrate their financial capacity to complete the deal.

There is no requirement to disclose transaction documents for either private or public companies. However, the acquisition price must be made public when acquiring a public company, especially if an MTO is required. This is because the MTO price cannot be lower than the price paid during the initial acquisition. If a shareholders’ agreement is signed in the process, key terms might need to be disclosed to the OJK if the buyer needs to prove that no change in control will occur and an MTO is not required.

In Indonesia, the BOD is granted full authority and responsibility over the management of the company, which extends to handling business combinations such as M&A transactions. The BOD is subject to a fiduciary duty, which dictates that it must always act in the best interests of the company as a whole, in good faith, and based on a duty of loyalty, rather than prioritising the interests of the shareholders alone. This distinction is significant because it aligns with the broader good corporate governance and business judgement rules that emphasise the BOD’s duty to serve the company’s best interests, rather than any particular group of stakeholders.

In line with this, Article 97(5) of the Company Law offers protection to the BOD against personal liability for any financial losses suffered by the company, provided that certain conditions are met. To qualify for this exemption from personal liability, the BOD must demonstrate that they have acted in accordance with their fiduciary duties. Specifically, the directors must show that they exercised their responsibilities in good faith, with careful judgement, and in a manner that supports the company’s stated goals and objectives. If the BOD can prove that their actions were aligned with the company’s purposes and were carried out with the necessary diligence, they are shielded from personal accountability for any negative outcomes or losses that the company might face. This legal provision ensures that directors are encouraged to make decisions in the company’s best interests without fear of personal repercussions, as long as they have acted prudently and with integrity.

It is standard practice for a BOD to form a special or ad hoc committee specifically designed to assist in the management and oversight of M&A transactions. These committees, or specialised teams, are established to support the BOD in a variety of critical tasks required for an M&A deal. These may include identifying potential acquisition targets that align with the company’s strategic goals, drafting and reviewing transaction-related documents, co-ordinating efforts with external advisers such as legal counsel, financial consultants, and investment bankers, as well as taking the lead in negotiating the terms of the deal with the counterparties. While these committees play an instrumental role in managing and streamlining the process, the final authority and responsibility for making key decisions in the transaction ultimately rest with the BOD members themselves.

Note that the role of these committees is not to address or resolve conflicts of interest that may arise among the BOD members. Instead, their primary function is to assist with the transaction’s overall management and execution. According to the Company Law, a director who is facing a conflict of interest is legally prohibited from representing the company in any dealings, including M&A transactions. In cases where a director’s personal interest conflicts with the company’s interest, the law requires other non-conflicted directors to step in and represent the company, assuming the BOD has more than one director. If, however, all directors on the BOD are conflicted, the responsibility shifts to the BOC, which serves as an oversight body in Indonesian companies. Should both the BOD and the BOC be compromised by conflicts of interest, the shareholders have the right and authority to appoint an independent third party to act on behalf of the company, ensuring the transaction is handled in the company’s best interest. This layered approach ensures that conflicts of interest are managed appropriately, and the company’s interests are safeguarded throughout the M&A process.

There are no restrictions on the BOD actively engaging in the negotiation process and defending the company’s interests during M&A transactions.

It is uncommon to have shareholder litigation in M&A transactions.

In Indonesia, directors involved in business combinations typically rely on a wide range of independent external advisers, particularly for legal, financial, and tax-related matters. This approach is considered best practice, as it helps ensure that the directors make well-informed decisions throughout the transaction process. Before reaching the stage of finalising any binding agreements in a business combination, it is customary for directors to seek guidance from outside legal experts. This is especially important for assessing the legal viability of the transaction and identifying any potential legal challenges that may arise. A thorough legal review ensures that the deal complies with all applicable laws and regulations, reducing the risk of unforeseen legal complications later on.

Equally important is the input from financial and tax advisers. Financial experts help the directors evaluate the potential economic impacts of the transaction, such as assessing the company’s financial health, analysing deal structures, opining on the fairness of the valuation, and identifying any financial risks that could affect the company’s future performance. Meanwhile, tax advisers play a key role in helping the directors understand the tax implications of the deal, ensuring that the company can optimise tax efficiency while remaining compliant with local and international tax laws. By combining insights from these external advisers, directors are better equipped to navigate the complexities of business combinations and mitigate risks, ultimately ensuring the transaction is in the company’s best interest.