Private placingsSpecific regulation
Are there specific rules for the private placing of securities? What procedures must be implemented to effect a valid private placing?
Private placement of securities is not specifically regulated under OJK regulations. It is categorised as a condition where the securities are offered to less than 100 parties or sold to less than 50 buyers. The OJK, however, regulates requirements for private placement for a public company where it is usually conducted for the purpose of capital increases without pre-emptive rights. Under Capital Market Law, public company is defined as a limited liability company owned by at least 300 shareholders and a minimum issued and paid up capital of 3 billion rupiahs.
In general, capital increases of a public company must be made with pre-emptive rights whereby the existing shareholders must be offered the issuance of new shares on a pro rata basis. Capital increases without pre-emptive rights must be preceded by the General Meeting of Shareholders’ (GMS) approval of the public company and is allowed for the purpose of correcting the company’s financial position or for other purposes.
A public company that conducts capital increases without pre-emptive rights for the purpose of correcting the company’s financial position must meet the following conditions:
- it is a bank that received a loan from Bank Indonesia or other government institution amounting to more than 100 per cent of its issued and paid up capital or other conditions that could result in the bank’s restructurisation by the authority;
- it is a non-banking institution with negative net working capital and liabilities of up to 80 per cent of its assets at the point when the GMS approved an increase of capital without pre-emptive rights; or
- it failed to meet its financial obligations to the non-affiliated creditor on the provision such creditor agreed to receive shares or a convertible bond of the company to settle such obligations.
Aside from correcting its financial position, a public company is only allowed to increase its capital without pre-emptive rights for the maximum of 10 per cent of its issued and paid-up capital under the following conditions. The increase must be held within five years after the relevant GMS if the capital increase is made for the purpose of an employee stock option programme and within two years after the relevant GMS if the capital increase is not for such purposes.
In the event that a private placement carried out by a public company triggers a change of control of the public company, the new controller is required to make a tender offer for the remaining shares, unless the change of control occurs in relation to the capital increases without pre-emptive rights to correct the financial position, as mentioned above.Investor information
What information must be made available to potential investors in connection with a private placing of securities?
A private placement does not require a prospectus. However, a public company that increases its capital without pre-emptive rights must announce that plan to all of its shareholders along with the announcement from the GMS. The announcement must be published in at least one national newspaper or on the IDX’s website and the company’s website. The OJK must receive evidence of its publication within two working days. The transparency principle must be met by providing, among other things, the following information:
- the reasons and purposes of the capital increases without pre-emptive rights;
- an estimated schedule of capital increases;
- how the funds generated from capital increases will be used;
- analysis of the company’s financial situation before and after increasing the capital;
- the risk of increasing capital without pre-emptive rights to the shareholders including the number of diluted shares; and
- information on the detail of capital structure before and after increasing the capital;
In practice, private placement of debt securities is based on a contractual arrangement between the issuer and the subscriber. Any custodian agent, such as the KSEI, and any arranger, such as a commercial bank, may be appointed in such a contractual arrangement. Disclosure of information on the private placement of debt securities shall be subject to the agreement between the parties thereto.Transfer of placed securities
Do restrictions apply to the transferability of securities acquired in a private placing? And are any mechanisms used to enhance the liquidity of securities sold in a private placing?
There are no laws or regulations that restrict the transfer of securities acquired in a private placement to a third party. For the debt securities, restriction for transfer shall be subject to the provisions set out in the contractual arrangement between the issuer and the subscriber.
There are also no laws or regulations that specifically regulate the mechanism to enhance the liquidity of securities. In practice, the credit rating and establishment of security or guarantee of third party are usually required to enhance the liquidity of debt securities.