OJK Re-Introduces Rules to Accommodate Rising M&A Trends in Banking Sector

On December 26, 2019, the Indonesian Financial Services Authority (“OJK”) issued and enacted OJK Regulation No. 41/POJK.03/2019 of 2019 on Mergers, Consolidations, Acquisitions, Integrations and Conversions of Banks (“OJK Reg. 41/2019”). OJK Reg. 41/2019 combines and revives the rules concerning mergers, consolidations, and acquisitions (“MCAs”) of commercial banks (the “Bank”). With these new rules, OJK Reg. 41/2019 replaces Bank Indonesia (“BI”) Board of Directors Decrees No. 32/50/KEP/DIR on Requirements and Procedures to Purchase Shares of Banks, and No. 32/51/KEP/DIR on Requirements and Procedures for Mergers, Consolidations, and Acquisitions of Banks (collectively, the “BI Decrees”). OJK Reg. 41/2019 also introduces several other new concepts to add and make relevant rising trends in relation to corporate restructuring arrangement in the financial service business, particularly banking.

New Framework for Bank’s Integration and Conversion

OJK Reg. 41/2019 now enables and makes clear procedure for “Integration” and “Conversion”.

Integration is defined as legal action conducted by foreign bank branch office (kantor cabang dari bank yang berkedudukan di luar negeri/”KCBLN”) and a Bank by transferring the assets and liabilities of the KCBLN to a Bank, followed by revocation of the KCBLN’s license.

Conversion is defined as legal action conducted by KCBLN to convert its license into a commercial banking license, followed by revocation of the said KCBLN’s license.

Introduction of New Concept for Controller and Acquisition

OJK Reg. 41/2019 adds provision stating that a transfer of control occurs when: (1) an acquisition of shares causes the acquirer’s share-ownership to be the largest in the Bank, or (2) ownership of shares that does not constitute the largest in the Bank, but is able to determine, directly or indirectly,  management in a Bank.

Recognition of More OJK’s Involvement

OJK Reg. 41/2019 now makes clear requirement to obtain OJK’s blessing in conducting MCAs, Integration, and Conversion, before the Bank’s shareholders approve the corporate actions are conducted. Previously, the BI Decrees require OJK’s approval only after obtaining shareholders’ approval from the merging/consolidating Banks or the target Bank (for acquisition). However, in practice, parties will have always conducted discussion with OJK in order to gauge OJK’s preliminary view on the proposed MCAs. With the issuance of OJK Reg. 41/2019, preliminary discussion with OJK is now explicitly required.

Similar with MCAs, proposed Integration and Conversion must also be initiated by preparing an integration plan and submitting preparatory documents to be submitted to OJK.

Following OJK’s blessing, MCAs, Integration, and Conversion must then be announced in national newspaper and similar procedures as in the BI Decrees must be undertaken.

Acknowledgement for Acquisition through Rights Issue

OJK Reg. 41/2019 stipulates that Bank acquisitions are carried out by taking over shares that have been issued and/or will be issued by the Bank, which results in the transfer of control in the Bank to the acquiring party. With this provision, it is now expressly allowed for acquisition to be conducted through rights issue.

Rules over Listed Banks

Similar to Controlling shareholders of the Bank owning shares that are not through the stock exchange, OJK Reg. 41/2019 stipulates that any shareholders of the Bank owning shares through the stock exchange and meeting the criteria of a Controller must undergo a fit and proper test. OJK Reg. 41/2019 also requires any party to divest its shares in the Bank if such party, when prohibited by laws from owning shares in the Bank, is proven to own shares in the Bank in the stock exchange. This provision seems to address possible scenarios where a party holds a Bank’s shares in the stock exchange by skipping the fit and proper test procedures or bypassing the shareholding restriction requirement for the Bank.

 

February 17, 2020

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