On 20 January 2014, the Indonesian stock exchange (“IDX”) issued a revised version of regulation No. I-A regarding the ‘Listing of Shares, and Securities with Equity-Features other than Shares, issued by Listed Companies’ (“New Regulation I-A”). New Regulation I- A is intended to simplify existing listing requirements, and to also enhance investor protection. New Regulation I-A amends certain provisions in the previous version of Regulation I-A (“Old Regulation I-A”) and certain related IDX circular letters, and became effective on 30 January 2014.
The key changes in New Regulation I-A are as follows:
- New Free Float Requirements
Changes have been made to the minimum free float requirements for new listings on both the main board and the development board of IDX, and a new minimum free float continuing requirement has been introduced for companies listed on the IDX. Please click here for a summary of the new minimum free float requirements.
The intended purpose of the new free float requirement is to promote liquidity on IDX, which is consistent with the regulatory push in Southeast and South Asia more broadly to increase equity holding by non-affiliated shareholders in the public markets. That said, historically, it has been difficult for regulators in Indonesia to effectively police the ultimate beneficial ownership of minority holdings in Indonesian listed companies, particularly as it is not uncommon for such holdings to be held via offshore vehicles and/or trust arrangements which make it difficult to trace the ultimate beneficial owners. IDX does have the formal power to issue warnings, impose fines, impose suspension of listing, and ultimately de-list an issuer for non-compliance with IDX regulations. It is difficult at this stage to gauge the approach IDX will take in practice in enforcing the new minimum free float requirement (and hence how effective the new requirement will be in meeting the overall regulatory aim), although one IDX director has recently been quoted in the press as saying that a forced de-listing will be the final sanction for non-compliance with the new rule.
- Subsequent Listing Application and Material Update to IDX
Companies seeking to list their shares on IDX now need to make a preliminary and a subsequent listing application to IDX. The preliminary listing application must be made before the prospective listed company files its IPO registration statement with the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK”), and the subsequent listing application must be made after obtaining the ‘effective letter’ from the OJK. Under Old Regulation I-A, prospective listed companies were only required to submit a preliminary listing application.
For the subsequent listing application, prospective listed companies are required to submit the following documents to IDX:
- a copy of the effective letter from the OJK;
- 5 hard copies and 1 soft copy of the public offering prospectus;
- a copy of the securities depositary agreement with PT Kustodian Sentral Efek Indonesia;
- a copy of the securities allotment report and a copy of the shareholder register;
- a copy of the share distribution confirmation.
Prospective listed companies need to submit the subsequent listing application only after obtaining the ‘effective letter’ from the OJK. The documents in a, b, and c above must be submitted no later than 2 IDX business days after obtaining ‘effective letter’ from IDX, and the documents in d and e above must be submitted no later than 1 IDX business day before the listing date.
The requirement to submit the subsequent listing application is intended to ensure that prospective listed companies will continue to update IDX for any material developments in relation to the IPO process.
In addition to the subsequent listing requirement, before obtaining the ‘effective letter’ from the OJK, prospective listed companies are required to have updated IDX on any material change or update that may have occured at any time after the preliminary listing application was approved. The update should have been submitted within 2 IDX business days of the change or update having occurred together with any relevant documentation regarding the material change(s). The obligation to update IDX should not be expected to delay the process of obtaining registration statement effectiveness from the OJK.
New Regulation I-A introduces new provisions regarding stabilisation. In particular, it provides that stabilisation must be conducted by a broker who is a member of IDX. The stabilisation plan must be submitted to IDX, together with the subsequent listing application (previously, the stabilisation plan was normally submitted at the time of the OJK first/second registration statement filing). Reporting on stabilisation activities must be submitted by the stabilising agent to IDX daily during the stabilisation period. The current practice in relation to stabilisation in Indonesia has not otherwise changed.
- Pre-IPO Corporate Actions
Where the prospective listed company undertakes a corporate action that will be implemented simultaneously with an IPO, the requirements and procedures for listing shares resulting from that corporate action must comply with relevant IDX regulations regarding corporate action. We understand that IDX is currently at the final stages of finalising a separate draft regulation on corporate actions. We suspect that the types of corporate actions the impending regulation may cover will include those customarily seen in Indonesian pre-IPO structures, for example, convertible bond, preference share and warrant structures.
- Term of Office for Independent Commissioners and Independent Directors
The maximum term of office for Independent Commissioners and Independent Directors (previously known as Non-Affiliated Directors) is now limited to two consecutive periods (normally each period will be around 3 to 5 years). This requirement must be fulfilled by existing listed companies at the latest within 6 months of 30 January 2014.
- Audit Committee and Internal Audit Unit
Prospective listed companies must have established their Audit Committee and Internal Audit Unit before the submission of the preliminary listing application. Old Regulation I-A only established the requirement to form the Audit Committee no later than 6 months after the listing of the shares.
- Pricing of Warrants
In the event a prospective listed company plans to issue warrants simultaneously with the IPO, the exercise price of the warrant must be at least 90% of the share offer price, or initial offering price, and is at least equal to the nominal price.
- Minimum Nominal Value of Shares
Under New Regulation I-A, a company may now issue shares without nominal value, provided that the initial offering price of those shares is not less than Rp100. If the company still wishes to issue shares with nominal value, the minimum nominal value must be at least Rp100. This will be relevant for companies considering a pre-IPO share capital restructuring.