Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

Merger control in Indonesia is governed by:

 

The following KPPU regulations are also relevant:

 

The KPPU enforces the above merger control legislation.

Scope of legislation

What kinds of mergers are caught?

Mergers, consolidations and acquisitions are caught.

  • A merger is defined as the legal act of one or more undertakings merging with another undertaking, resulting in assets and liabilities being transferred by operation of law to one undertaking and the legal status of the other to cease by operation of law.
  • A consolidation is defined as the legal act of two undertakings or more to consolidate by establishing a new undertaking that obtains the assets and liabilities from the consolidating undertaking by operation of law, with the legal status of the consolidating undertakings ceasing by operation of law.
  • An acquisition is defined as the legal act of an undertaking acquiring shares or assets of another undertaking, resulting in a change of control of the undertaking or assets of the undertaking. It is generally assumed that a change of control could also involve a change from sole to joint control.

 

The concepts of mergers, consolidations and acquisitions should be interpreted broadly to mean any type of concentration of control over undertakings that were previously independent into one undertaking or group of undertakings, or a change of control from one undertaking to another undertaking that results in a concentration of control or market concentration.

A share acquisition may be carried out through a direct purchase from the existing shareholder or the capital market, or via subscription of new shares by capital injection. It goes beyond the conventional understanding of the term by encompassing legal instruments that are conceptually similar to shares, which enable their owners to control and receive benefit from such ownership (eg, a participating interest commonly acquired in the oil and gas industry). An acquisition of shares with no or limited voting rights (preferred stock) is exempt from notification as no change of control results.

A transfer of assets (tangible or intangible) is tantamount to an acquisition of shares and, accordingly, should be notified to the KPPU if there is:

  • a transfer of their management control or physical control; or
  • an increase in the ability of the acquirer to control a relevant market;

 

The following asset transfers are exempt:

  1. a non-bank asset transfer transaction valued at less than 250 billion rupiahs;
  2. a bank asset transfer transaction valued at less than 2.5 trillion rupiahs;
  3. a transfer of assets that is carried out in the ordinary course of business – this depends on the business profile of the acquiring party and the purpose of the acquisition. Transactions in the ordinary course of business are:
    • transfers of assets that are finished goods from one undertaking to another for resale to consumers by an undertaking that is active in the retail sector (eg, the sale of consumer goods by retailers); and
    • transfers of assets that are supplies to be used within three months in the production process (eg, the purchase by an undertaking of raw materials and basic components from various sources for production);
  4. a transfer of assets specifically in the property sector that meets one of the following criteria:
    • space for use by the buyer; or
    • social facilities or facilities proposed for general use.
  5. Assets that are not intended for business use by the acquirer (eg, land for corporate social responsibility or not-for-profit activities, or to comply with statutory requirements).

 

The transferred asset value in points (1) and (2) above is as cited in the latest financial statements or as calculated at the sale or purchase or other legal asset transfer. The highest of these should be the basis for calculation of the threshold. If the transferred assets are privately owned, the asset value would be based on the value as referred to in the seller’s tax filing.

An undertaking is defined as any individual or business entity, either a legal or non-legal entity, that is established and domiciled or is carrying out activities within Indonesia, either individually or jointly, by virtue of an agreement, while carrying out various business activities in the economic field.

If the transaction is carried out between affiliates, the transaction is exempt. A company is an affiliate of another if:

  • it either directly or indirectly controls or is controlled by that company;
  • both it and the other company, directly or indirectly, are controlled by the same parent company; or
  • there is a ‘main principal shareholder’ relationship with the counterparty.

 

The principal shareholder should be a controlling shareholder. Affiliation means a relationship of control.

What types of joint ventures are caught?

Joint ventures are, in principle, caught by Indonesian merger control legislation, unless they are greenfield joint ventures. To avoid doubt, mergers, consolidations or acquisitions carried out by a joint venture after its establishment are still caught, provided that the other criteria are met.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

There is control if the acquiring party holds more than 50 per cent of the shares or voting rights, or it holds 50 per cent of the shares or voting rights or less but has the ability to influence or direct the company’s policy or management, or both.

Whether the acquiring party has the ability to influence or direct the undertaking’s policy or management is determined case by case. Case law shows that an acquiring party may, for instance, have control because it has certain veto rights and a right to nominate the majority of directors, including the president director, or if it has more expertise than the other shareholder in the business in which the target is engaged.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

The jurisdictional thresholds for notification are:

  • the combined worldwide value of assets exceeds 2.5 trillion rupiahs or if all undertakings involved in the transaction are active in the banking sector, 20 trillion rupiahs; or
  • combined sales value exceeds 5 trillion rupiahs in Indonesia.

 

Undertakings that do not need to notify a transaction because the above thresholds are not met are not immune to KPPU investigation.

Of relevance to the calculation are worldwide assets or sales in Indonesia of the acquirer, and all undertakings (ie, including the target) that following the merger, consolidation or acquisition directly or indirectly control or are controlled by the undertaking that carries out a merger, consolidation or acquisition of shares or assets. This includes the ultimate beneficial owner, which is the highest controller of a group of business entities that is not controlled by any other business entity.

The jurisdictional thresholds are also met if only one party involved in the transaction meets the threshold.

‘Target’ includes the target and its subsidiaries, and the seller is not taken into account; however, if the transaction results in a change from single to joint control, the worldwide assets or sales in Indonesia, or both, of the existing shareholder and its affiliates are also relevant (unless the transaction is carried out by a joint venture within the meaning discussed below).

The asset and sales value are calculated based on the most recent consolidated audited financial report of the ultimate beneficial owner or, if no consolidated financial report is available, the financial reports of the ultimate beneficial owner and each of its subsidiaries. Sales value includes sales of products produced domestically and imported products. Exported products should be excluded from the calculation.

If the asset or sales value of a party involved in the merger, consolidation or acquisition has decreased by 30 per cent or more in an accounting year as compared with the year before, the value is calculated on the basis of the average of the past three years, or if the decrease occurred in under three years, the average of the past two years.

If the transaction is carried out by a joint venture, the ultimate controlling entity for the calculation of the asset and sales value is the joint venture itself, so the calculation should be based on the financial statements of the joint venture, as well as of the target and its subsidiaries (if any). The asset and sales value of other affiliates of the joint venture (eg, the controlling entities and sister companies) may be ignored for the calculation of the threshold.

According to the KPPU, the joint venture should form a business unit that is independent from each of the shareholders that have formed the joint venture. The joint venture should have its own financial statements, separated from each of the undertakings that have formed it.

The KPPU does not seem to require that the shareholding of parent companies in the joint venture is equal (ie, 50-50) or that they have exactly the same rights over the governance of the joint venture, but rather that both parent companies are given rights over strategic decisions (including veto rights) that would confer on them joint control over the joint venture.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

A post-merger filing is mandatory if all criteria are met. Parties involved in the transaction may carry out a voluntary pre-merger filing; however, even if parties carry out a voluntary pre-merger filing, the post-merger filing will still be mandatory. No exceptions exist.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

Foreign-to-foreign mergers may have to be notified if they have a nexus in the Indonesian market. A transaction has a nexus if at least one party engaged in the transaction carries out business activities in or sales to Indonesia.

In addition, the transaction should have an impact on the Indonesian market. According to the Merger Guidelines, this includes the situation in which one party that carries out the merger, consolidation or acquisition has business activities in Indonesia and the other party does not but has a sister company that carries out business activities in or has sales to Indonesia.

The KPPU has confirmed that this is just one example. Other transactions with an impact are situations in which two parties involved in the transaction have sales; in other words, transactions that create a concentration in Indonesia (ie, with at least two parties involved in the transaction having business or sales in Indonesia) would, in principle, need to be filed in Indonesia.

Based on the single economic entity doctrine, a party as mentioned above can form part of a business group with:

  • the surviving undertaking in a merger or the undertaking that carries out the consolidation or acquisition;
  • the undertaking that carries out the consolidation; or
  • the undertaking that carries out the acquisition or the undertaking that is being acquired.

 

Other parties involved in the transaction relevant to establish a nexus are the seller that becomes a joint controller or target, and any of its affiliates.

‘Business activities in Indonesia’ can be broadly interpreted and include direct and indirect (portfolio) equity investment in an Indonesian limited liability company (PT), investment in financial instruments other than shares, such as loans or assets, contractual rights, participation in a unit or trust, no matter whether directly or indirectly, or opening of a representative office.

Whether a company has ‘sales in Indonesia’ is not always easy to determine. Note that parallel sales could also trigger a notification requirement.

Although a transaction is believed not to have impact on the Indonesian market if just one party has business or sales in Indonesia, the KPPU recommends that parties still file the transaction so the KPPU can assess the impact of the transaction on the Indonesian market comprehensively.

Are there also rules on foreign investment, special sectors or other relevant approvals?

Indonesia has a general foreign investment regime as set out in Law No. 25/2007 on Investment, as amended by the Job Creation Law (the Investment Law), and implementing legislation, including Presidential Regulation No. 10/2021 on Investment Sectors as amended by Presidential Regulation No. 49/2021 (the 2021 Investment List).

Under the Investment Law, all business fields are open to foreign investment, unless declared otherwise. Foreign investment must be carried out through a foreign investment company in the form of a limited liability company under Indonesian Law (PT PMA) and domiciled within the territory of the state of the Republic of Indonesia, unless provided otherwise by the law. Foreign investors who make investments through a PT PMA should:

  • subscribe to shares at the time the PT PMA is established;
  • purchase shares; or
  • invest through another method in accordance with laws and regulations.

 

The 2021 Investment List indicates:

  • 37 business fields are subject to specific requirements, which may be classified as:
    • open to foreign direct investment (FDI) but subject to a maximum foreign shareholding limit;
    • open to FDI but subject to special approval from the relevant ministry;
    • 100 per cent reserved for domestic investors; and
    • certain business fields that are limited, supervised or regulated by a separate regulation on supervision and control of alcohol beverages;
  • six business fields that are completely prohibited from FDI under the Job Creation Law (narcotics, gambling or casinos, harvesting of fish listed in the Convention on International Trade in Endangered Species of Wild Fauna and Flora, utilisation or harvesting of coral, chemical weapons and chemicals that may damage the ozone layer);
  • 60 business fields that are reserved for cooperatives and small and medium-sized enterprises (SMEs); and
  • 46 business fields that are open to FDI if in partnership with cooperatives and SME.

 

Several sectoral laws (eg, in banking, non-banking financial services (venture capital, multi-finance and securities companies), insurance, mining, oil and gas, and shipping) introduce foreign investment rules and restrictions. It goes beyond the scope of this overview to discuss those sectoral laws in detail.