Indonesia's capital markets are currently facing a number of significant issues due to the global financial crisis. In response to these events, the Indonesian Capital Market and Financial Institution Supervisory Board or “BAPEPAM-LK” announced a new rule on share buy backs on 9 October 2008. Titled Rule No. XI.B.3 on Buy Back of Issuers or Public Companies Shares in a Potentially Crisis Market Condition (the Rule), it is designed to restore market stability, liquidity and confidence.
Below is a brief summary of the key features of the Rule.
A Potential Crisis Market Condition is defined as an event where the Composite Share Price Index (IHSG) on the Indonesian Stock Exchange has been significantly weakening for a minimum of 20 (twenty) stock exchange trading days due to economic conditions which do not encourage a fair stock market price.
The Rule changes the procedures for share buy backs. It allows issuers or public companies to buy back shares without breaching regulations relating to market manipulation or insider trading.
Issuers or public companies can conduct share buy backs without seeking approval from a General Meeting of Shareholders (GMS). The buy back is limited to 20 per cent of the paid-up capital of the issuer or public company. Any buy back will require the issuer or public company to notify both Bapepam-LK and the Stock Exchange details of their plans and the buy back must be completed within three months of the notification. The following prescribed information regarding the buy back plan must be submitted to Bapepam-LK at least one day before conducting the share buy back:
- estimated schedule and total amount required for undertaking the share buy back;
- forecast on the decrease of revenue as a result of the buy back and the impact of the financing for the buy back;
- details of management discussions and analysis on the impact of the buy back on the business activities of the company and future company growth.
The volume of the share buy back transactions in one stock exchange day is unlimited.
A buy back can become part of an Employee Stock Option Plan or an Employee Stock Purchase Plan with the approval of the GMS, in accordance with Bapepam-LK Rule No. IX.E.1 as it relates to conflict of interest transactions.
The share buy back must not result in a “delisting” of the relevant issuer or public company (e.g. on the basis that the issuer or public company has insufficient shareholders to justify continued listing). The wording of the Rule on how a share buy back transaction may be implemented is somewhat unclear. It states that “if” the share buy back is made through the stock exchange, the purchase must be made through one broker dealer. The use of the word “if” suggests that the share buy back can done otherwise than through the exchange, namely outside the stock exchange regime although the other provisions of the Rule would need to be complied with in such cases.
The Rule is silent with regards to a share buy back price. The general Bapepam-LK Rule which governs share buy backs (in normal conditions), namely Rule XI.B.2, expressly provides that the offer price to purchase (buy back) shares must be at a price below or equal to the previous market trading price. A share buy back at a price far higher than the market price would be inappropriate as this would result in a potential significant loss to the relevant issuers or public companies.
If the re-sale of the buy back shares by the issuers or public companies to a subsequent purchaser is made through the stock exchange:
- the offer to sell must be equal to or above the previous trading price;
- the re-sale transaction must be made through one broker dealer;
- re-sale transactions can only be made after 30 days from the date of completion of the share buy back;
- the maximum re-sale of buy back shares by the issuers or public companies per day is 25% of the daily trading volume of the relevant public company shares;
- re-sale transactions on the exchange must not be undertaken within 30 minutes from the start of a stock exchange session or 30 minutes before the close of the same; and
- insiders of the buy back company are expressly prohibited to undertake dealings in the public company shares during the buy back period.
The Indonesian Government has also encouraged State-owned enterprises (BUMN) to buy back shares to help restore investor confidence. In response to that comment PT Telekomunikasi Indonesia, the nation’s largest telecoms company announced they would spend Rp 3 trillion on buybacks. State coal producer PT Bukit Asam has allocated Rp 1 trillion to buy back its shares, while state gas distributor PT PGN said it had made available Rp 450 billion.