OJK Amends Regulation on Material Transaction and Change of Business Activities
On April 21, 2020, the Financial Services Authorities (Otoritas Jasa Keuangan or “OJK”) issued OJK Regulation No. 17/POJK.04/2020 on Material Transaction and Change of Business Activities (“OJK Reg. 17/2020”) – replacing the previous Regulation No. IX.E.2 issued by the Capital Market and Financial Institution Supervisory Body (now OJK) concerning the same (“Regulation IX.E.2”).
There are several notable developments in OJK Reg. 17/2020 compared to Regulation IX.E.2 as follows.
A. MATERIAL TRANSACTION
- Definition and Scope of Material Transaction
The OJK Reg. 17/2020 defines ‘Material Transaction’ as every transaction conducted by a Public Company having a transaction value of at least 20% (twenty percent) of the said company’s equity, be it in a single or a series of transactions. These transactions include:
- Participation in a business entity, project, and/or certain business activity;
- Purchase, sale, transfer, use, exchange or assets or operation/business segments;
- Acquisition, disposal and/or use of services;
- Lease assets;
- Lending and borrowing of funds including its transfer;
- Securing the assets of the said company and/or a Controlled Company over loans from other parties; and
- Providing a corporate guarantee.
OJK Reg. 17/2020 now provides an elaboration on the term “a single or a series of transactions” under the definition of a Material Transaction, as follows:
- Having dependency and/or continuity between the contemplated transactions;
- Obtaining other company(ies)’s securities in stages with the intention to control or conduct investment;
- Disposing a company’s securities in stages with the intention of divestment resulting in in loss of control; and
- Obtaining or disposing a unit of asset that is carried out separately (for example, selling a factory by splitting its components and selling it to different parties).
Examples of “A Series of Transactions” falling into the definition of Material Transaction under OJK Reg. 17/2020:
Party X purchases shares issued in Company A, Company B, and Company C – from Party Y.
These transactions will be considered as a series of transactions if: (i) Party Y offers its shares in each of these companies to Party X in a packaged deal with a certain total price and (ii) there is a correlation between the business activities of these companies.
- Threshold of Material Transaction
Similar to Regulation IX.E.2, the OJK Reg. 17/2020 maintains the 20% (twenty percent) threshold to determine a transaction as Material Transaction, while also introducing new specific thresholds for the following transaction/condition:
- Acquisition or disposal of a company or a business segment can also be considered as Material Transaction if:
- the transaction value is equal to 20% (twenty percent) or more of the equity of the Public Company;
- the total assets of the transaction object divided by the total assets of the Public Company is equal to or more than 20% (twenty percent);
- the net profit of the transaction object divided by the net profit of the Public Company is equal to or more than 20% (twenty percent); and
- the revenue of the transaction object divided by the revenue of the Public Company is equal to or more than 20% (twenty percent).
- Public Companies with negative equity will be deemed to be carrying out Material Transaction if the above listed types of transaction represent at least 10% (ten percent) of the said company’s total assets (instead of equity).
- Non-consolidated subsidiary. Public Companies that due to dilution during a capital increase in the Controlled Companies no longer able to maintain financial statement consolidation, must comply with the provisions under this OJK Reg. 17/2020 if:
- total assets of the said Controlled Company represent at least 20% (twenty percent) of the total consolidated assets of the Public Company.
- the net profit of the said Controlled Company represents at least 20% (twenty percent) of the consolidated net profits of the Public Company; and
- the revenue of the Controlled Company represents at least 20% (twenty percent) of the consolidated revenue of the Public Company.
In order to determine whether a company transaction has reached a certain threshold as determined above, the calculation needs to be based on an audited financial report that is made no more than 12 (twelve) months prior to:
- the date that the Public Company is diluted, if the calculation as noted above is no more than 50% (fifty percent); or
- the date of the General Meeting of Shareholders (“GMS”) if the calculation as noted above is more than 50% (fifty percent).
3. Method of Determining Value of Material Transaction
Transaction value to determine whether a transaction is considered a Material Transaction shall be calculated based on: (i) an audited annual financial report, (ii) a quarterly financial report – with the review or audit accountant report, or (iii) any audited interim financial report that is made no more than: (i) 12 (twelve) months prior to the transaction date (for any transaction without a GMS approval or (ii) the date of the GMS (for transaction requiring a GMS approval).
- Procedures and Requirements
OJK Reg. 17/2020 requires Public Companies to comply with the following procedures to carry out Material Transaction:
- engage an Appraiser to determine the reasonable value of the Material Transaction object and/or the fairness of such transaction;
- publish an information disclosure regarding such transaction to the public;
- submit such information disclosure and its supporting documents to OJK;
- obtain a GMS approval in the event that:
- the value of such transaction is more than 50% (fifty percent) of the equity of the Company;
- the value of such transaction is more than 25% (twenty five percent) of the total assets of the Public Company with negative equity; or
- the appraisal report shows that such transaction is non-arms-length (transaksi tidak wajar).
In comparison to the Regulation IX.E.2 – point 4a and b are the new conditions introduced in OJK Reg. 17/2020.
Both Regulation IX.E.2 and OJK Reg. 17/2020 require Public Companies to obtain a new GMS approval if they fail to carry out the Material Transaction within 12 (twelve) months after the initial GMS approving such transaction. In addition, Public Companies must also disclose such event in its annual report, providing the reason why it failed to do so within the given period.
- Provisions on Material Transaction Having Potential to Disrupt Business
OJK Reg. 17/2020 now requires any Public Company intending to carry out a Material Transaction with potential to disrupt business continuity to (i) have the transaction appraised, (ii) conduct disclosure of information to public and OJK, and (iii) obtain approval from independent shareholders in a GMS held in accordance with OJK Regulation No. 15/POJK.04/2020 dated April 21, 2020 on Planning and Implementation of GMS for Public Companies.
Similar to the Regulation IX.E.2, OJK Reg. 17/2020 also provides certain conditions of exemptions to the procedures and/or requirements for Material Transaction. Unlike in Regulation IX.E.2, the exemptions introduced in OJK Reg. 17/2020 are limited to exemptions from obligation to engage Appraiser and to obtain GMS approval but does not include exemptions of the disclosure obligation (notwithstanding disclosure requirements under OJK Regulation No. 31/POJK.04/2015 on Disclosure of Material Fact and/or Information by Public Companies). Therefore, for exempted Transaction Materials under OJK Reg. 17/2020, Public Companies still need to comply with the disclosure requirement (to public and the OJK) – unless specifically exempted from such requirement.
The types of transaction exempted under OJK Reg. 17/2020 are similar with exemptions in Regulation IX.E.2, save for the following:
- transactions conducted by a publicly listed financial services companies whose Controlled Company engages in sharia-based financial services, for the purpose of developing such sharia-based financial services Company; and
- transactions for the purpose of restructuring, conducted by a Public Company either directly or indirectly controlled by the government.
Specifically, OJK Reg. 17/2020 provides that publicly listed financial services companies are exempted under ‘certain condition’, which means such companies are precluded from the requirements (i) to engage an Appraiser,(ii) to conduct public disclosure, (iii) to submit disclosure documents to OJK, as well as (iv) to obtain GMS approval. However, OJK Reg. 17/2020 does not provide further elaboration on this ‘certain condition’, which will be further regulated by OJK.
Exemptions of Main Business Activities
OJK Reg. 17/2020 no longer includes ‘main business activities’ under the list of exempted transactions under OJK Reg. 17/2020. In addition, the previously exempted ‘activities using the company’s assets for or in support of the said company’s production and/or main business activities’ are also excluded in OJK Reg. 17/2020.
In relation to this, OJK Reg. 17/2020 now details that capital expenditures (CAPEX), such as the purchase of production machinery or assets leasing for production, would not fall under the category of transactions relating to business activities and therefore, will not be exempted from the requirements of Material Transaction.
Only those expenditures related to operational expenditures (OPEX) are exempted from all requirements of Material Transaction under OJK Reg. 17/2020 and will only need to be stipulated in the annual report or annual financial report of such company.
B. CHANGE OF BUSINESS ACTIVITIES
OJK Reg. 17/2020 stipulates the following actions shall be considered as a change of business activities:
- Addition of a business activity in the articles of association which will be implemented;
- The performance of a business activity that has been stated in the articles of association but is yet to be performed;
- Reduction of a business activity that has been performed; and
- Replacing all business activities that have been performed with new business activity.
Similar with Regulation IX.E.2, OJK Reg. 17/2020 also requires a GMS approval and certain information disclosure for any change of business activities. However, OJK Reg. 17/2020 now additionally requires Public Companies to engage an Appraiser to carry out feasibility study over the change of business activity.
C. SANCTIONS AND EFFECTIVE DATE
Unlike Regulation IX.E.2, OJK Reg. 17/2020 provides certain type of sanctions for non-compliance ranging from written warnings to cancellation of registration.
OJK Reg. 17/2020 will be effective 6 (six) months after its enactment, which will be on October 21, 2020, except for the provision of Article 12 and provisions on sanctions.
Article 12 of OJK Reg. 17/2020 and provisions on sanctions will be enforced starting from April 21, 2020. Article 12 of OJK Reg. 17/2020 discusses the exemption of GMS approval for publicly listed financial services companies in certain condition.
May 15, 2020
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- May 15, 2020