Corporate M&A 2020

Last Updated April 20, 2020


Law and Practice


SSEK Legal Consultants has a corporate M&A practice with 30 lawyers, including five partners and three foreign legal advisers. There are 20 members in the labour and employment practice, advising on employment-related aspects of M&A transactions (employee notifications, employee lay-offs, compensation packages, transfers, etc). The primary practice areas which relate to the M&A sector are automotive, banking and finance, consumer goods and retail, energy and natural resources (mining, oil and gas, private power and renewable energy), healthcare, hotels and tourism, insurance, real estate, shipping and maritime, and TMT. SSEK’s competition lawyers advise on competition and anti-monopoly law in connection with M&A transactions. SSEK is known for advising clients on complex regulatory issues with sophisticated and innovative legal solutions to the unique issues they face in Indonesia.

Investors have maintained their appetite for Indonesia’s technology, media and telecom (TMT) sector, rea. There has continued to be significant growth in the number of start-ups established across various sectors. One particular trend is online app-based start-ups, many of which are looking for venture capital as a strategic option to finance their growth. Several start-ups in Indonesia have achieved unicorn status including Gojek, Tokopedia, Traveloka and Bukalapak. Outside of the tech space, specific traditional sectors, such as banking and finance and logistics, have continued to see realised deals. Another area of activity concerns government-initiated holding company projects. After completing, in December 2018, the creation of the Indonesian Oil and Gas Holding State-Owned Enterprise, Indonesia’s largest state-owned holding company, the culmination of several years of work, the government has expanded this campaign to include sectors such as mining, real estate and pharmaceuticals.

After creating the online single submission (OSS) system, in an effort to encourage investment and streamline the licensing process, the government is migrating the OSS system to an improved platform, referred to as OSS 1.1. This new platform is expected to contain a number of new features, including the ability to identify and differentiate between the main business activity of a company and supporting business activities, so any foreign ownership limitation will be determined based solely on what is considered the main business line of a company.

The past year has seen a significant increase in the number of foreign companies pursuing investment in local companies, especially in the technology and finance sectors, as well as in crypto-brokerage companies. While private equity and venture capital firms continue to be very active in pursuing investments in Indonesia, there were also a significant number of strategic investors pursuing long-term investments in local companies engaging in those areas.

With the continued growth in e-commerce activities in Indonesia, and both the government and industry players advocating for greater financial inclusion, there has been a spike of interest from technology companies in the finance industry, including multi-finance, peer-to-peer (P2P) and payment solutions. Banking remained a favourite industry for many foreign investors in 2019, despite the rigorous procedures and requirements imposed by the Indonesian government for investors acquiring a bank.

Purchasing shares in a company, either from a selling shareholder or from the company itself, is the most common type of share acquisition in Indonesia. Asset acquisitions are also becoming more common for individuals acquiring business units.

Other methods include mergers or amalgamations, where the target company may be dissolved into the surviving company and will therefore no longer exist.

Depending on the sector in which the target company is engaged, any change of shareholding composition resulting from either a merger or acquisition must be approved or acknowledged by the Ministry of Law and Human Rights. The Ministry is the department that oversees all limited liability companies, no matter the sector, non-public or public alike.

If a foreign party wishes to acquire shares in an Indonesian company, generally, for most industries, a certain ownership limitation will be applicable, and it will be monitored by the Investment Co-ordinating Board (Badan Koordinasi Penanaman Modal – BKPM). Other industries, especially if they are heavily regulated, eg, banking, finance, and telecommunications, are under specific government agencies, such as the Financial Services Authority (Otoritas Jasa Keuangan – OJK), Bank Indonesia or the Ministry of Communication and Informatics.

The OJK has supervisory authority for the takeover of public companies and if the public company is listed on the Indonesian stock exchange (IDX), the only stock exchange in Indonesia, then the IDX’s listing and trading rules will also apply, particularly when there is trading activity due to the M&A activity.

It is possible that multiple regulators will supervise a transaction if the target company’s status and core business require it. For example, for the acquisition of a public company engaged in the telecommunications sector, both the OJK and the Ministry of Communication and Information Technology will play a supervisory role. Other government agencies may have regulatory oversight of a particular transaction, depending on the business in which the public company engages. For example, the Ministry of Transportation supervises the aviation, shipping and land transportation sectors. Regulations issued by these and other industry-specific government agencies will impact mergers and acquisitions.

There are various limitations to foreign direct investment in various sectors in Indonesia, which can be found in the general "negative investment list" issued from time to time by the President or in a specific law or regulation related to a specific sector such as banking, finance, aviation or payment systems. Some sectors are completely closed to foreign ownership, but many sectors (eg, manufacturing, IT service and management consultancy) are open for 100% foreign investment.

Post-merger notification is mandatory for any merger, consolidation or acquisition of shares between non-affiliated companies that:

  • causes a change in control: and
  • meets the Indonesian assets or sales thresholds (as set out below).

The qualifying transaction must be reported to the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha) within 30 working days as of the effective date of the relevant merger, consolidation or acquisition.

There are two applicable thresholds used to assess whether a transaction is subject to the merger report, whether:

  • the combined value of the companies’ assets in Indonesia exceeds IDR2.5 trillion (IDR20 trillion for banks); or
  • the combined turnover in Indonesia exceeds IDR5 trillion.

Merger, consolidation or acquisition-of-shares transactions conducted between affiliated parties are exempt from the mandatory post-merger notification. Parties are considered affiliated if one controls the other (whether directly or indirectly) or if the same entity controls them. Mergers, consolidations or acquisitions of shares between companies that are controlled by the government (ie, state-owned enterprises) do not qualify for this exemption.

The Indonesian Labour Law (Law No 13 of 2003) allows an employee to resign due to a "change of ownership" of the employer entity and receive enhanced separation entitlements. Another issue concerning labour entitlements due to a change of ownership is the impact on the purchase and sale transaction. Labour entitlement payments can be costly, especially where there are many long-serving permanent employees.

There is no national security review mechanism for commercial mergers or acquisitions in Indonesia.

In June 2018, the government introduced the OSS system, an integrated online application system created to accommodate the process of obtaining business licences and permits, including those related to mergers and acquisitions. Before June 2018, the BKPM issued business licences and permits for foreign investment companies that had customarily been a condition-precedent item to closing a transaction. With the OSS system, the permits and licences will need to become a condition-subsequent and generally no longer be the responsibility of the seller or vendor.

While the intention of the OSS is to simplify all licensing processes, there remains a post-audit risk, ie, an audit by the BKPM, which still has the authority to supervise foreign investment companies. Otherwise, the relevant examinations for compliance will be conducted post-transaction, after the target company completes the online submission. Investors are expected to be aware of the applicable regulatory regime to make sure that compliance with applicable laws and regulations is maintained to minimise any post-audit risks that may ultimately affect their investment in the target company.

There were no changes in the law or regulations in the last year that have affected takeover laws in Indonesia.

If a bidder decides to build a stake in a target, they can do so either through a direct increase in shareholding or by way of derivatives. The former is more common, although the latter is becoming increasingly frequent due to commercial or tax reasons.

In general, the Ministry of Law and Human Rights maintains a registry that includes corporate information on all limited liability companies in Indonesia, including their shareholding information. Any change in shareholding composition will need to be acknowledged by the Ministry and recorded in the registry, which is accessible to the public. A buyer intending to acquire a controlling stake in a non-public company will also need to announce the transaction publicly through nationally circulated newspapers before the buyer and the seller can close the transaction.

A disclosure obligation also arises concerning an interest in securities when an investor reaches 5% of outstanding shares in an Indonesian public company. Once a shareholder reaches the 5% threshold, the shareholder must report to the OJK on any transfer of shares, provided the ownership is still above 5%.

If the shareholding ownership drops below 5%, the shareholder must still report the decrease of ownership (eg, the ownership changing from more than 5% to less than 5%), after which no reporting is necessary for any transfer of shares (provided the ownership remains less than 5%).

Also, rules from the IDX require companies listed on the IDX to make public any information relating to investors owning 5% or more of the shares in that public company (available on the IDX website). The public companies must make the disclosure no later than ten calendar days after the obligation arises, because there will have been an acquisition or disposition of shares.

The IDX identifies shareholders owning more than 5% of the shares in a public company on its website.

Any increase or change in shareholding in most non-public companies requires shareholder approval. The Company Law (Law No 40 of 2007) sets out the minimum quorum and voting requirements for shareholders' meetings. However, the articles of association can specify higher thresholds, which will prevail over those specified in Indonesian company law.

Obtaining shareholder approval may prove difficult, although not always, particularly if a company consists of many shareholders and a quorum is difficult to achieve. Other difficulties may include obtaining the licence or approval from the relevant government authority for including a foreign element in the shareholding composition, which is particularly true for certain industries such as the payment industry.

Shareholder approval is generally not required for an increase in shareholding in public companies, unless the increase is made through a rights subscription. In general, obtaining approval from the shareholders in a public company is more challenging, not only from a procedural perspective but also in the gathering of the necessary quorum, in which case securing a commitment from the incumbent controller of the company is almost always necessary.

Many acquisition transactions are preceded by an agreement involving derivatives, such as a subscription agreement to convertible or exchangeable bonds, or a call/put option agreement. These are allowed under Indonesian law and there are various reasons for pursuing such agreements. The most notable reason is tax efficiency, while another is security (eg, to secure repayment in a loan arrangement).

There is no disclosure requirement when the stakebuilding is carried out using derivatives (eg, convertible bonds, call/put options). The post-merger report (as discussed in 2.4 Antitrust Regulations) does not apply either. The disclosure/report obligation will arise only on the exercise/conversion of the derivatives into shares in the company if the relevant thresholds are met.

As previously mentioned, a buyer intending to acquire a controlling stake in a non-public company will need to announce the transaction publicly through nationally circulated newspapers before the buyer and the seller can close the transaction. However, in general, there is no requirement for the buyer to disclose their intention regarding control of the company.

For heavily regulated industries such as banking, a strategic investor who intends to acquire and control a particular bank must disclose their intention regarding the direction of the bank’s business, going forward, during their "fit and proper" test to become the controlling shareholder of the bank.

For takeovers of public companies using the voluntary tender offer (VTO) method (as explained in 6 Structuring), a bidder must also make known their intention for the target company, ie, whether they wish to delist the company from the stock exchange and make it a private company.

There is no requirement to disclose a deal when acquiring a non-public company, other than the newspaper announcement mentioned previously.

In terms of public company acquisitions, a prospective controller can announce that it is in negotiations with the seller in a nationally circulated newspaper. This announcement is typically made if the buyer anticipates an increase in the price of the public company's shares, which will affect the minimum price at which the buyer must purchase the shares during any subsequent mandatory tender offer (MTO) process.

Once the negotiation process is announced, a 90-day period for determining the MTO price is locked, starting backwards from the date on which the announcement was made. If an announcement is not made, the 90-day period will be calculated backwards from the date of the closing (ie, the date on which the acquisition is effective).

To the extent that the prospective controller decides not to disclose to the public information resulting from the negotiations, the parties involved must keep confidential the information that results from the negotiations.

Generally, Indonesian market practice is that the timing of disclosure is made according to the requirements prescribed in law.

There are no specific requirements or procedures for due diligence before acquiring a company. However, it is common and best practice for a bidder to perform due diligence on the target company before proceeding with an acquisition.

In practice, due diligence will cover the following:

  • corporate organisation and general information;
  • compliance with general and industry-specific licensing and reporting requirements;
  • assets owned and leased, including real estate;
  • borrowings;
  • material agreements, including third-party contracts, commitments, and miscellaneous agreements;
  • litigation and claims; and
  • employees, including key employees.

In the case of public companies, the selling shareholder, being the incumbent controller of the public company, is considered an insider and therefore any sale of shares by that shareholder is subject to applicable rules concerning insiders. The insider rules require any selling shareholder and the buying party to enter into a confidentiality agreement, under which the buying party undertakes that any information received (including information from the due diligence process) will be kept confidential and will not be used for any purpose other than a securities transaction with the insider/selling shareholder.

During the early stage of deals (eg, term-sheet negotiation, due diligence), it is very common that a sole bidder or offeror demands exclusivity, typically lasting for three to six months from the signing of a term sheet or memorandum of understanding.

In the case of public company acquisitions, a prospective buyer of the shares may agree with the seller on certain terms related to the MTO in the share purchase agreement. It is relatively uncommon, but in certain cases the buyer may need a commitment from the seller to support the buyer in fulfilling his or her sell-down/re-float requirement following the MTO that it conducts after the takeover.

The OJK regulation on public company takeovers requires a re-float obligation that follows a takeover and MTO, which obligation, if the new controller holds shares in excess of 80% of a public company that were acquired through the MTO, requires the new controller to sell down to 80% within two years of the MTO and retain a minimum public float.

For acquiring/selling non-public or public companies, the process will generally take around three to six months, starting from the term-sheet negotiation stage, continuing with due diligence, share purchase agreement negotiation, conditions fulfilment and closing. The process will generally take twice as long if the acquisition is made through a rights subscription over a public target entity, where a general meeting of shareholders to obtain their approval must be convened.

There is no mandatory offer threshold applicable to mergers or acquisitions involving non-public companies.

For public companies, an MTO is generally required following a change of control arising from an acquisition of shares either from an incumbent shareholder or if the change of control arises from the subscription for newly issued shares in a rights offering (unless exempted under certain conditions).

A change of control is generally deemed to occur where either more than 50% of shares in the public company are acquired or, if less than 50%, there is an effective change of control over the management, or policy-making in the company.

If the acquisition is by subscription for newly issued shares issued by the non-public target company, the consideration must be either cash or in-kind. In a direct acquisition from an existing shareholder, the consideration can be in the form of cash or shares in another company. Subscription to new rights issued by public companies can only be made in cash.

As explained previously, a new controller of a public company is obliged to make an MTO to the remaining minority shareholders, as a result of it acquiring a controlling stake from an existing controller of the public company. In the case of an MTO, conditions for offer are generally as prescribed by law.

Other means of obtaining control include mergers and VTOs. However, given the regulatory and procedural complexities that a merger will entail (particularly when it involves a public company), mergers are quite rare except where they occur for regulatory purposes in the banking and insurance sectors. VTOs are also rare and are more often used by a controlling shareholder to take a public company private and delist, in addition to acquiring a controlling stake.

There is no minimum acceptance condition for MTOs, since bidders are required to make the offer after they acquire a controlling stake and attain control of the company. In other words, they are required to buy the shares from each of the minority shareholders participating in the offer, which means a minimum acceptance condition is irrelevant.

There may be a minimum requirement in a VTO context, depending on whether the offeror wishes to have the public target delisted from the stock exchange and make it a private company. If the offeror does wish to do so, the OJK will typically allow the going-private to happen if there are fewer than 50 remaining shareholders.

Many buyers in M&A settings require third-party financing to acquire shares in a target company. It is permitted and common for the buyer and seller to agree that the transaction will close only once the buyer has secured proper financing. This is particularly important if the acquisition involves a publicly listed target, in which the buyer may need to make an MTO following the acquisition, which will require the buyer to have the necessary financial capability.

Committed funding is also required before announcing an offer in a VTO context. A party conducting a VTO must submit a statement on the availability of funds to settle the VTO, which must be supported by an opinion from the accountant, bank or securities company involved.

Deal security measures, such as break fees, are not common in Indonesia, although they are permitted. In smaller deals involving individual local vendors, some will require break fees, which are typically half the cost of lawyers' fees and other related expenses they may have incurred.

A controller does not have to own 100% of a target company to control it. A shareholder owning more than 75% of shares would have the requisite voting power to adopt any corporate actions that are subject to shareholder approval under the Company Law (as discussed in detail below).

In general, resolutions of a general meeting of shareholders (GMS) are adopted by consensus. Failing which, a resolution must be approved by more than one half of the shares in attendance or represented, except for the following corporate actions, which require higher thresholds:

  • amendment to the articles of association, which must be approved at a meeting at which at least two thirds of the company's voting shares are represented and at least two thirds of the shares in attendance approve the resolution; and
  • a merger, consolidation, acquisition, bankruptcy and/or dissolution of the company, as well as the transfer or pledge of the company's assets as security for a loan that comprise more than 50% of the company's net assets in one or more related or unrelated transactions (this must be approved at a GMS at which at least three quarters of the company's voting shares are represented and at least three quarters of the shares in attendance approve the resolution).

Additional governance rights, other than the above, can still be agreed between the shareholders in a shareholders' agreement or even in the articles of association, by specifying certain reserved matters on which unanimous approval is required or by creating a class of shares that provide specific rights to certain shareholders.

In general, under the Indonesian Company Law one share bears one vote and each share is issued under the name of its holder. The Company Law does not allow the issue of bearer shares.

Despite the above, it is possible for a shareholder to give proxy to another party to attend a shareholders' meeting and cast his or her vote on the shareholder’s behalf.

The OJK as of this writing has never issued clear-cut guidelines for acquiring an Indonesian publicly listed company and then delisting it and taking it private. The OJK normally issues a "letter" to the prospective controller specifying the procedures and requirements on a case-by-case basis.

In general, the delisting itself requires GMS approval and the OJK's "no objection" toward a tender offer statement being submitted by the company.

In the most recent examples, the OJK has also required that the going private:

  • is approved by independent shareholders (simple majority vote, attended by more than 75% of independent shareholders with voting rights); and
  • follows the procedures of a VTO towards all the shares in the public company, be it the founding shares or the public shares.

The delisting and the going-private are only effective once the aforementioned requirements have been fulfilled and the total number of the company's shareholders is fewer than 50 parties.

It is expected that all public shareholders would sell their shares during the one-month tender offer period at the price offered by the prospective buyer. In general, the price for the tender offer is required to be higher than the average of the highest daily trading price at the stock exchange for the last 90 days before the tender offer announcement is made. Once the tender offer process has been concluded and it results in the total number of shareholders dropping below 50, the company may proceed to change its status to a private company.

If the target of having fewer than 50 shareholders is not achieved, the company may not proceed with going private and the tender offer process may need to be repeated, subject to a ruling by the OJK, and this may involve an increase in the offering price. The process can be tricky and may come down to chasing individual shareholders to convince them to "participate" in the tender offer process.

Once the going-private becomes effective any shareholders who did not participate in the tender offer process will remain as shareholders of company. To fulfil the requirement of the Company Law, Article 62, which essentially gives shareholders the right to have their shares bought by the company if they think they are suffering losses due to a certain corporate action of the company, any shareholders who did not approve the going-private may request the company to buy their shares at a fair price (as determined by an appointed independent appraiser) and the company is required to do so.

When negotiating or signing a conditional share purchase agreement, it is permissible and common to secure a commitment from the incumbent controller of the target company, especially if the transaction requires approval from shareholders and the securing of a minimum number of affirmative votes to close the deal.

A bid is made public in the case of either an MTO, which follows a change of control, or a VTO. Before the offeror can proceed with either, he or she must announce their intention to the public. The announcement must be reviewed by the OJK before it is released. The offeror can only proceed with the MTO or VTO after the OJK states that it has no objection to the tender offer statement.

In the case of a share acquisition involving a non-public company, generally no disclosure is required other than the newspaper announcement discussed in 4.2 Material Shareholding Disclosure Threshold, which contains very basic information concerning the buyer and the target and the fact that there will be a change of control over the company.

If the share acquisition is made over a public company through the issue of shares, the issue will be subject to shareholder approval through a GMS, which must be preceded by the circulation of a fully-fledged prospectus by the target company.

There is no requirement for bidders to produce a financial statement, other than the requirement that the bidder has the financial capability. Committed funding is required before announcing an offer. A party conducting a VTO must prepare a statement on the availability of funds to settle the VTO, which must be supported by an opinion from the accountant, bank or securities company involved. In practice, the same also applies to MTOs.

Transaction documents are not required to be disclosed, either in a non-public or public company merger or acquisition. The pricing, however, must be disclosed in an acquisition of a public company, particularly if an MTO is required to be conducted by the new controller following the acquisition. This is because the price to be offered by the new controller in an MTO must not be lower than the price used in acquiring the shares in the initial acquisition.

If a shareholders' agreement is signed when acquiring a public company, it may become necessary to later disclose the key terms of the agreement to the OJK. This is typically the case when the buyer must demonstrate to the OJK that there will be no change of control occurring from the transaction and that an MTO will therefore not be necessary.

All members of the board of directors of limited liability companies in Indonesia, whose primary duty is to carry out the day-to-day operations of the company and to represent the company, must perform their duties in good faith, for the best interest of the company and in accordance with the purposes and objectives of the company as specified in its constitutional documents.

The same also applies to the members of the company’s board of commissioners, whose primary duty is to supervise and monitor the directors. The board of directors and board of commissioners make up the two-board system that the Company Law requires, each has equal status despite their distinct functions. A GMS appoints the members of both boards.

The board of directors can establish a special team or committees to assist it in overseeing the M&A process, including identifying a potential target, drafting transaction documents, co-ordinating with outside advisers, as well as negotiation. Typically, however, the directors themselves make all the final decisions.

The establishment of such special teams is not intended to tackle conflict of interest issues. The Company Law does not allow a director to represent the company, including in an M&A context, if the director has a conflicting interest with that of the company. In this case, other directors in the company must represent the company (if the company’s board of directors consists of more than one director). If all directors are conflicted, the board of commissioners can represent the company. If both boards are conflicted, the shareholders can appoint another party to represent the company.

Directors and commissioners of public companies and financing companies must further follow an additional set of rules under capital markets laws, which deal with conflict of interest. Public companies must disclose to the public any transactions by the company that have a conflict of interest element involving the interest of any party affiliated with the directors or commissioners of the company. The transaction must be approved first by disinterested shareholders if it transpires that the transaction is considered to be detrimental to the public company or if it is not in the best interest of the company.

The business judgement rule, though not formally recognised under Indonesian law as a legal term, describes a concept of immunity that is similar to that provided under the Company Law. Article 92 of the Company Law gives authority to the board of directors to manage the company according to its good judgement, within the parameters of the Company Law and its constitutional documents. Article 97 further states that a member of the board of directors will not be liable for the losses of the company if it is evident that:

  • such losses are not the result of his or her fault or negligence; 
  • he or she has performed with due care in managing the company, with good faith and prudence for the interest of the company according to its purposes and objectives;
  • there is no element of conflict of interest, either directly or indirectly, in the management of the corporate action that resulted in the loss; and
  • he or she took precautionary measures to avoid the loss or the continuance of it.

While the above seems clear, ie, that all business judgements rendered according to law should provide protection to directors against all liabilities that may arise from any potential business risks, it may not be the case if there is an element of potential loss to the state. A recent case shows that a business decision made by a director of a state-owned enterprise that goes wrong may put the director at risk of being accused of a criminal act. The Attorney General would, of course, need to prove that there was an intention of wrongdoing before the court could convict the defendant. However, this at least shows that the courts may look beyond the judgement of the board of directors in cases that involve loss to state-owned enterprises.

It is almost always the case that the management of companies seeks outside counsel before entering into any definitive agreement for business combinations. Prospective acquirers seek legal counsel for the obvious reason that the transaction is legally feasible and to identify all rights and obligations that the acquirers will assume from the combination, including any legacy liabilities. A financial and tax consultant will also play an important role to help quantify any financial risks, and their findings during the due diligence will often complement those risks identified from the legal end.

In certain transactions involving targets engaged in the natural resources sector, it is also common and advisable to seek the advice of environmental consultants, since environmental issues are often a highly topical in Indonesia. The consultants will be useful in suggesting corrective measures to prevent the recurrence of legacy environmental issues, which, if not corrected, may lead to imprisonment.

Conflicts of interest of directors or shareholders have been the subject of corruption law enforcement, particularly where a potential loss to the state has been identified. The Indonesian Corruption Eradication Commission (KPK) is currently investigating a former District Head for allegedly receiving bribes from a company in connection with a regional infrastructure procurement project, in which he was also an indirect controlling shareholder of the company. The case is considered a corporate crime, and as of this writing, there has been only one company that has been found guilty of committing a crime of corruption.

The Supreme Court has issued a regulation that sets out procedures for handling corporate crimes. Since its issue there have been several instances where companies were investigated for possible corporate crimes. The KPK in particular appears to have used the regulation to investigate corporations in connection with corruption cases.

Hostile bids are not recognised in Indonesia. As explained earlier, acquisitions in Indonesia can be performed either through direct acquisition from existing shareholders, or by acquiring newly issued shares directly from the company.

In the case of public companies, almost all public companies in Indonesia have controlling shareholders in place, making hostile takeovers unlikely. Direct acquisitions require the co-operation of the incumbent controlling shareholders for the obvious reason that those controlling shareholders must be willing to sell, while rights offerings also require the support of controlling shareholders for the simple reason that they are subject to the approval of a shareholders meeting, where securing the affirmative vote from these shareholders will be necessary.

No defensive measures are available for directors, either in the context of non-public or public company acquisitions.

In a VTO situation, directors of the public target can make known publicly their objection to the offer. There are no other measures made available by the law other than this. Their announced objection may prove to be sufficiently compelling and the shareholders of the public target may think twice before saying yes to the offeror.

In general, whatever measures directors take, their fiduciary duty to act in the best interest of the company remains in place, as discussed previously.

Directors cannot "just say no" or take action that could prevent the acquisition of the company in which they hold office.

Litigation in connection with M&A deals is not common in Indonesia.

If a court dispute does occur it will most likely take place after the transaction documents have been signed, either after or before closing. A breach of contract claim by the buyer might occur if the seller cannot fulfil the warranties or undertakings as agreed in the transaction documents. This should be a sufficient basis for making a filing at a court in Indonesia.

Shareholder activism is not a defined term, not is it recognised under any laws in Indonesia. The Company Law, however, does provide minority shareholders with certain rights. These rights give them the ability to initiate certain actions that are essentially intended to protect them against potential losses that might be caused by a company’s corporate actions. In an M&A context, for example, each shareholder has the right to request that the company repurchase his or her shares at a reasonable price if a merger, consolidation or acquisition of the company causes the shareholder to suffer losses. Each shareholder is also entitled to file a lawsuit against the company if the shareholder suffers losses caused by any of the company’s actions that are considered unfair or unreasonable.

In the realm of public companies, any conflict of interest transactions that may cause a loss to the company are subject to prior approval from minority or disinterested shareholders, which is given through a general meeting of independent shareholders.

The way rights are given to minority shareholders under the Company Law is generally not intended to give them the ability to encourage certain corporate actions of the company. The company must convene a shareholders' meeting at the request of one or more shareholders who jointly represent one tenth of the total number of shares having valid voting rights, but there is no guarantee that the meeting will yield the outcome that the minority shareholders are seeking without securing the votes of the majority shareholders in the company.

The Company Law does not provide any rights to minority shareholders to interfere with transactions, particularly when they are still in the announcement stage, which typically means the shareholders or the board (as applicable) have not approved the transaction. The rights of minority shareholders are triggered only when a corporate action, including those involving M&A transactions, has obtained the requisite corporate approval either at shareholder or board level.

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Walalangi & Partners (in association with Nishimura & Asahi) is a corporate firm focusing on M&A, banking and finance, real property, foreign direct investment, antitrust, debt and corporate restructuring, capital market and bond issuance, employment, general corporate, TMT, energy and natural resources, and construction. The firm is in full association with Nishimura & Asahi (N&A), the largest law firm in Japan in various legal matters, including cross-border transactions and pan-Asian practice. Walalangi & Partners is ranked by Chambers Asia-Pacific and Chambers Global in Corporate/M&A and highly regarded in the market generally.

Overview of the Indonesian Market

Indonesia is a country with enormous economic resources (both human and natural). In December 2019, the World Bank reported that Indonesia, a diverse archipelago nation of more than 300 ethnic groups and the world’s fourth most populous nation, was the largest economy in Southeast Asia and had charted impressive economic growth since overcoming the Asian financial crisis in around 1998. Indonesia’s GDP has steadily risen, from USD823 in 2000 to USD3,932 in 2018.

The above facts make Indonesia very attractive to investors. The statistics of the Indonesia Investment Co-ordinating Board (Badan Koordinasi Penanaman Modal or BKPM) recorded 126 different countries of origin for investors in Indonesia, contributing a total of USD28.2 billion derived from 30,354 investment projects realised in Indonesia in 2019. Singapore, China, Japan, Hong Kong, Netherlands, Malaysia, South Korea, the USA, British Virgin Islands and Australia are the top ten countries of origin in terms of number of realised investment projects and investment amount. The total investment realisation in 2019 increased approximately 12.2% from the same period in 2018, which is almost a tripling of the 4.1% increment in 2018 compared to 2017.

Indonesia’s 2020-24 Infrastructure Development Plan

With a strong commitment from the incumbent Indonesian government, led by President Joko Widodo (or Mr Jokowi), to continue accelerating multiple aspects of development, focusing on infrastructure and human resources in Indonesia, many believe Indonesia has years of sustainable economic and investment growth ahead.

Prior to assuming his first term of office in 2014, Mr Jokowi committed to developing infrastructure in various area of Indonesia as one of his government’s main focuses. That commitment was implemented in a 158.4% increase in infrastructure spending during Mr Jokowi’s first term. For his second five-year term, Mr Jokowi remains highly committed to accelerating Indonesia’s infrastructure development, as can be shown in the 2020-2024 National Medium-Term Development Plan. The Indonesian government’s main infrastructure projects include the construction of 58 new water-dams, 2,000 km of toll roads, seven new seaports, 25 new airports, and the completion of a 35,000 MW power project (the Fast Track II programme). These ambitious infrastructure development plans call for approximately USD412 billion in investment, which will be financed by the Indonesian government (40%), state-owned enterprises (25%), and the private sector (35%). For 2020 alone, the budget for infrastructure has been increased by 4.9% (IDR423.3 trillion compared to IDR399.7 trillion in 2019). The increases in the 2020 budget for infrastructure are mainly allocated to road infrastructure projects aimed at the completion of 837 km of road construction, as well as 6.9 km of spanned bridges, 238.8 km of railway track construction, three new airports, 49 water-dams, and 5,224 low-cost apartment units and 2,000 houses for low-income citizens by the end of 2020.

In addition, Mr Jokowi confirmed the plan to relocate the capital city of Indonesia from Jakarta to East Kalimantan. The Indonesian Minister of Public Works and Housing, Basuki, announced that the ground breaking is planned to take place in the fourth quarter of 2020. It is planned that the new capital will be built on approximately 180,000 hectares of state land, this will, obviously, require massive infrastructure projects.

Considering the Indonesian government’s progressive plans, outlined above, Mr Jokowi’s Minister of Finance, Ms Sri Mulyani, has publicly invited co-operation between private companies and state-owned enterprises through development financing requirements, and she aims to receive funding of approximately IDR19.7 trillion from the private sector through public-private partnerships (PPPs).

Foreign Investment – M&A

Indonesian law requires foreign investment to be conducted through an Indonesian limited liability company (PT), with an exception for upstream oil and gas and construction services, which can be done through a direct joint operation between foreign entities and local entities. As a result, the number of cross-border M&A transactions in Indonesia is continuously increasing. The BKPM records that, foreign direct investment contributes more than 50% of total investment realisation in Indonesia.

General foreign investment in Indonesia is regulated under investment laws and regulations, with the BKPM as the government authority authorised to, and responsible for, supervising the investment. Investment in certain sectors – such as banking, financial institutions, insurance, mining, and oil and gas – is subject to separate regulatory regimes. Most investment licences are now processed by the BKPM through the so-called “online single submission (OSS) system”, a centralised and electronically integrated business licensing system introduced by the Indonesian government in mid-2018, which has proven to be more efficient and transparent.

The Indonesian government issues, from time to time, the so-called “negative list”, which classifies foreign investment in certain lines of business – also known as Klasifikasi Baku Lapangan Usaha Indonesia or KBLI – as either prohibited, or subject to greater scrutiny and restrictions. This includes limitations on foreign ownership, requirements for local partnership, limited permitted locations, and requirements for special licences. Under the prevailing negative list, a “distributor not affiliated with production” is limited to a maximum 67% foreign ownership (previously 33%) and freight forwarding is limited to 67% foreign ownership (previously 49%). E-commerce is now open for 100% foreign investment within a partnership scheme.

An exemption to the limitations set out under the negative list applies for indirect or portfolio investments made through the Indonesian Stock Exchanges. Portfolio investment is not defined by the regulation but, in practice, it is generally accepted that it means minority investment through capital markets without control, and where only intended for capital gain.


The traditional funding alternatives are bank loans, shareholders loans, corporate bonds, warrants or initial public offering. For early stage (start-up) companies, the recent trend of funding alternatives includes investments from ultra-high net worth individuals and crowdfunding platforms. Prominent sources of funding for growth-stage companies include large cap private equity houses and other tech giants, investing directly or indirectly through venture capital funds. There is also a trend for investment in fintech companies fuelled by big conglomerates, eg, Lippo-backed OVO and EMTEK-backed DANA.

In the final quarter of 2019, the news reported that Kredivo, a P2P lending platform, secured debt funding of USD20 million from Partners for Growth V, L.P. (PFG); and that Modalku received debt financing from Netherlands-based Triodos Investment Management. Another 22 funding rounds for fintech start-ups were announced and approximately USD100 million in total disclosed amounts were reported in November 2019. Most of this was injected by venture capital or private equity firms.

Closing Structure of Private M&As

The tools and techniques used in foreign direct investment (private M&A) depend on the characteristics of the business of the target and the negotiating circumstances of the parties.

A locked-box mechanism is more common for transactions involving companies with dynamic business activities and a wide range of customer portfolios, such as banks or multi-finance companies.

An escrow is common for specific deals where certain conditions or procedures are to be fulfilled by the buyer and seller within the same timeframe or in interconnected deals which require payment to be fully paid up/made before the other connected deal is completed, or where there is a price adjustment agreed by the parties after the completion.

Another alternative is a price adjustment mechanism, which allows the parties to adjust the purchase price after completion (if, for example, the valuation of the assets/shares decreases).

Fundamental pre-closing conditions, depending on the characteristics of the deal and business line, are: (i) government approvals (if required by specific regulations); (ii) the internal corporate approval of the parties and acquired company; (iii) creditors’ consent; and (iv) announcements to the creditors and employees. Post-closing conditions are more administrative requirements by nature and include, for example, a notification to the authorised government and the creditors and a newspaper announcement. This includes a merger notification report to the Indonesian Antitrust Supervisory Commission (KPPU) when the threshold set under the regulation is met.

Major Issues Affecting M&A Deals

To support the target of infrastructure development, the Indonesian government has introduced various new policies and regulations to ensure a conducive political and economic ecosystem. The sudden change in government policies and/or regulations has profoundly affected Indonesia's status as a potential target M&A market.

Accordingly, businesses will have to assess the new situation and adapt to the changing regulatory requirements by reconsidering how a deal is structured and which financing strategies will work best for them. Indonesia has quite a unique and complex regulatory and government monitoring system, with multi-layered regulations depending on the type of business, nature of investment, company status (private or public) and geographical location (central or regional).

Furthermore, businesses are generally supervised by the Indonesian government through various government authorities, depending on their business characteristics. For example, general foreign investment in Indonesia is subject to the BKPM’s regime; with the exception of specific types of business, particularly in the banking and non-bank financial institution sectors as well as public companies, which fall within the authority of the Financial Services Authority (OJK). To compound the issue, Indonesia adopts a policy of regional autonomy, where local governments have specific authority to regulate specific activities within their territorial jurisdiction. The common issues in many sectors include, among others: (i) the considerable overlap and inconsistency between national and regional regulations; and (ii) the obscurity and multiple interpretations of certain regulatory requirements. Thus, it is very important for investors to solicit full support from local counsel who really understand not only the literal meaning of the relevant regulation but also the practical implications and policies, and those who have the capacity to bridge the communication gap and advise the most appropriate and legally doable structure for the contemplated M&A transaction.

The key regulation applicable to all M&A transactions involving limited liability companies, regardless of the type of business, is Law No 40 of 2007 (and its implementing regulations) concerning limited liability companies.

Recent Regulatory Updates

Significant regulatory updates and changes in 2019 that have a direct impact on foreign investors’ interest in Indonesian market are listed below.

New merger control rule

Through the issuance of Regulation No 3 of 2019, the Indonesian Business Competition Supervisory Commission has expanded the scope of the merger report, which initially covered only share acquisition, but now also includes asset acquisition. This being any transfer of assets allowing the acquirer to exercise or increase control in the relevant market. Similar threshold to share acquisition apply: (i) combined assets value, as recorded in the financial statements, exceeding IDR2.5 trillion (or approximately USD178 million); or (ii) combined sales value in Indonesia exceeding IDR5 trillion (or approximately USD357 million).

Enforcement rule of fiducia security

On 6 January 2020, the Indonesian Constitutional Court (the Constitutional Court) rendered a controversial binding decision, namely decision No 18/PUU-XVII/2019 (the Decision), following its judicial review of provisions under Law No 42 of 1999 concerning Fiducia Security (the Fiducia Law) relating to the statutory right to summary execution or self-executory rights vested in creditors (ie, the fiducia security grantees). Initially, the Fiducia Law essentially granted a right to summary execution (recht van parate executie) to a creditor, allowing the creditor to immediately sell the security property without obtaining a prior court order. This right is evidenced by the fiducia certificate issued in favour of the creditor as provided in Article 15 (2) of the Fiducia Law, which explicitly stipulates that the fiducia certificate bears an executory title equivalent to a final and binding court decision. In the Decision, the Constitutional Court found that the right to summary execution vested in the creditor is somewhat partial, whereby the debtor as the fiducia security grantor is deprived of either the ability or the opportunity to defend itself against the “one-way” determination of its default by the creditor. On this basis, to ensure balanced protection for the debtor and the creditor, the Constitutional Court gave a somewhat-stretched interpretation of Article 15 (2) of the Fiducia Law, holding that the executory title contemplated in the fiducia certificate is enforceable and valid only to the extent that: (i) there is a mutual agreement between the fiducia security grantor and fiducia security grantee on the occurrence of default; and (ii) the fiducia security grantor willingly surrenders the security property to the fiducia security grantee or its designated party. Otherwise, the executory title granted under the fiducia certificate is not directly enforceable, and consequently the enforcement of the fiducia security should follow the ordinary security enforcement process through Indonesian civil court proceedings. In line with that, the Constitutional Court also made a limiting constitutional interpretation of Article 15 (3) of the Fiducia Law, holding that either a mutual agreement between the creditor and the debtor or the commencement of legal proceedings (upaya hukum) is required to determine the occurrence of the debtor’s default.

Insurance – foreign ownership limitation

On 20 January 2020, the Indonesian government enacted Government Regulation No 3 of 2020 (GR 3/2020), amending the previous Government Regulation No 14 of 2018 on Foreign Ownership in Insurance Companies (GR 14/2018). Many believe GR 3/2020 shows a friendlier face to foreign investors and therefore demonstrates the Indonesian government’s support of foreign investment. Previously, GR 14/2018 required a private insurance company intending to increase its issued and paid-up capital to ensure that, at least 20% of the additional capital, was subscribed for by Indonesian shareholders or otherwise offered for sale on the stock exchange – resulting in automatic dilution of the existing foreign shareholders with more than an 80% stake (grandfathered foreign shareholders). Through GR 3/2020, the Indonesian government has lifted the above requirement and established a new anti-dilution provision, allowing grandfathered foreign shareholders to subscribe for additional shares in the event of the company’s decision to raise its capital, provided that their existing shareholding percentage remains the same or is not increased.

Negative investment list

It has been reported that in order to promote the Indonesian market to foreign investors, the Indonesian government is currently working to replace the current negative list with a more investment-friendly “positive list” to allow a more relaxed threshold or full foreign ownership in a greater number of business sectors.

Omnibus laws

One of the biggest hurdles in attracting investors to Indonesia is overlapping and contradictory legislation, not only at the central government level but also at the regional level. This situation has caused great confusion and delays to businesses when implementing their investment plans. To improve the country’s investment climate, the Indonesian government is planning to introduce two Omnibus Laws, namely: (i) Omnibus Law on Job Creation (Cipta Kerja); and (ii) Omnibus Law on Taxation (Perpajakan), both intended to serve as “super-integrated” regulations harmonising (by way of amending, revoking, or supplementing) various existing overlapping laws and regulations. With these Omnibus Laws, businesses can simply refer to one or two centralised and integrated regulations when identifying the latest changes to various existing laws and regulations.

The Omnibus Law on Job Creation focuses on the simplification of investment procedures, business licensing, employment (including foreign worker employment and immigration requirements), research and innovation incentive support, land procurement and special treatments to promote the growth of micro, small and medium enterprises. On the other hand, the Omnibus Law on Taxation offers specific tax incentives, including a reduction in corporate income tax (with a further 3% reduction applicable to certain qualified publicly listed companies), and a tax exemption on qualified dividends. Those incentives are intended to reduce the tax expenses of investors and are eventually expected to encourage them to reinvest the extra gains in Indonesia.

Employment – outsourcing rule

In August 2019, the Indonesian government amended several basic rules on outsourcing in Indonesia, which provide a degree of clarity on the registration of outsourcing agreements and the outsourcing business licensing process.

Walalangi & Partners (in association with Nishimura & Asahi)

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Law and Practice


SSEK Legal Consultants has a corporate M&A practice with 30 lawyers, including five partners and three foreign legal advisers. There are 20 members in the labour and employment practice, advising on employment-related aspects of M&A transactions (employee notifications, employee lay-offs, compensation packages, transfers, etc). The primary practice areas which relate to the M&A sector are automotive, banking and finance, consumer goods and retail, energy and natural resources (mining, oil and gas, private power and renewable energy), healthcare, hotels and tourism, insurance, real estate, shipping and maritime, and TMT. SSEK’s competition lawyers advise on competition and anti-monopoly law in connection with M&A transactions. SSEK is known for advising clients on complex regulatory issues with sophisticated and innovative legal solutions to the unique issues they face in Indonesia.

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Walalangi & Partners (in association with Nishimura & Asahi) is a corporate firm focusing on M&A, banking and finance, real property, foreign direct investment, antitrust, debt and corporate restructuring, capital market and bond issuance, employment, general corporate, TMT, energy and natural resources, and construction. The firm is in full association with Nishimura & Asahi (N&A), the largest law firm in Japan in various legal matters, including cross-border transactions and pan-Asian practice. Walalangi & Partners is ranked by Chambers Asia-Pacific and Chambers Global in Corporate/M&A and highly regarded in the market generally.

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