A. Introduction

A stock split (“SS”) is where a company subdivides its shares by splitting 1 share into 2 or more shares based on an agreed ratio. This results in an increase of the number of the company’s shares and a reduction in the nominal value of each share, whilst maintaining the total value of each member’s shareholding.

By way of illustration, if Shareholder A owns 50 shares in Company A with a nominal value per share of IDR 1,000,000, and Company A conducts an SS in a ratio of 1:2, Shareholder A will get 100 shares, with a nominal value per share of IDR 500,000. The total number of Company A’s shares increases and the nominal value of each of Shareholder A’s shares decreases due to the SS, while the nominal value of his/her total shareholding remains the same (i.e., IDR 50,000,000).

By contrast, a reverse stock split (“RSS”) merges 2 or more shares into 1 share based on an agreed ratio, thus resulting in a decrease in the number of each shareholder’s shares and an increase in nominal value per share, while the total nominal value of their shareholdings remains the same.

An SS and RSS do not have a direct impact on a company (other than to change the number of shares issued by that company), and do not change shareholding composition and percentages.

In private companies, SS and RSS are generally treated as a mere change in the nominal value of shares, which can be done by amending the company’s articles of association.

In the case of public companies, however, the situation is rather more complicated. Both SS and RSS were previously regulated solely by the Indonesian Stock Exchange (“IDX”) Listing Rules, a situation that many observers regarded as inadequate to ensure adequate protection for minority shareholders. This has now been remedied with the issuance of Financial Services Authority (“OJK”) Regulation No. 15/POJK.04/2022 on Stock Splits and Reverse Stock Splits by Public Companies (“POJK 15”),[1] which aims to establish a comprehensive set of rules on SS and RSS and provide better protection for minority shareholders and retail investors.

POJK 15 was issued on 22 August 2022 and enters into force 6 months thereafter (on 22 February 2023).

B. Key Provisions of POJK 15

1. In-principle approval from the Indonesian Stock Exchange for SS / RSS

A public company must now obtain in-principle approval from the IDX for an SS or RSS, something that was previously not required. This approval must be obtained prior to the passing of the General Meeting of Shareholders (“GMS”) resolution to approve the SS or RSS.

For a publicly listed company, the IDX will grant in-principle approval after taking into account:

  1. trading liquidity of the company's shares;
  2. company share price and fluctuations;
  3. the company's fundamental financial performance;
  4. ratio of the SS or RSS;
  5. free floating shares owned by the public; and
  6. monitoring of trading in the company’s shares.

If necessary, the IDX can request (a) an appraisal report or (b) the views of the OJK before granting in-principle approval. However, the regulation is silent as to the detailed procedures in both cases.

For the following types of company:

  1. an unlisted public company (i.e., one whose shares are not listed on the IDX);
  2. a public company the trading of whose shares has been suspended for at least 3 months; and/or
  3. a public company whose shares have traded at the lowest share price permitted by the IDX (IDR 50 per share) for at least 30 exchange days during the 3 months prior to the application for in-principle approval;

an appraisal is required prior to carrying out the SS or RSS for the purpose of obtaining guidance when determining the ratio of the SS or RSS. The IDX will also be guided by the appraisal when deciding whether to grant in-principle approval.

2. Lock-up period

a. A public company is prohibited from conducting an SS or RSS within the following periods:

  1. At least 24 months from the date of an initial public offering; and/or
  2. 12 months from:
  • the effective date of registration of a rights issue;
  • the implementation date of a private placement, except for an increase of capital in the context of an employee share ownership scheme;
  • the implementation date of a previous SS or RSS; or
  • the effective date of a statement of merger or consolidation

whichever is the most recent.

b. A public company is prohibited from conducting a private placement within 12 months of an SS or RSS, unless it is to improve its financial position.

c. The prohibitions in paragraphs a and b above are not applicable to a public company that: (i) is a financial services institution, in certain circumstances; or (ii) is conducting a restructuring to improve its financial position.

3. Odd lot and fractional shares

After an RSS, public shareholders may be left with odd lot or fractional shares. “Odd lot shares” (“OLS”) refers to a holding of fewer than 100 shares (the minimum amount permitted to be traded on the IDX), while a “fractional share” (“FS”) is a holding of less than 1 share, which is contrary to Indonesian law (as lawful share ownership must involve at least one share).

To address this, a public company must designate a party to purchase OLS and FS resulting from an RSS (“Designated Party”). The Designated Party should then make an offer to purchase the relevant shares within 1 and 5 business days of the RSS.

If OLS and FS continue to exist after purchase by the Designated Party, the company may issue new shares to enable the Designated Party to eliminate its holding of OLS and FS. Issuance of such shares must be approved by a GMS, and is not subject to rights-issue obligations.

An unlisted public company must establish a mechanism to resolve an FS issue that may arise as a result of an RSS.

4. Implementation of SS and RSS

a. Initial Disclosure of Information

Prior to carrying out an SS or RSS, a public company must disclose preliminary information on the scheme (“Initial Disclosure”) to the OJK (with supporting documentation) on the same day as the GMS resolution approving the SS or RSS.

The Initial Disclosure must be at least bilingual (Indonesian and English) and include information on, among other things, the following:

  1. The class of shares;
  2. The change in nominal value of the shares as a result of the SS or RSS;
  3. The ratio of the SS or the RSS;
  4. The date of the IDX in-principle agreement for the SS or RSS;
  5. The reason and purpose of the SS or RSS
  6. An appraisal report summary (if applicable); and
  7. Any proposed corporate actions to be taken within 6 months of the SS or RSS that would have an impact on the number of shares or amount of equity of the public company.

In the case of an RSS, the Initial Disclosure of Information must also provide information on transactions conduct in order to resolve issues related to OLS and FS.

b. Second Disclosure of Information

After the proposed SS or RSS has been approved by the GMS, the public company must make further disclosure of information prior to the actual conducting of the SS or RSS (“Second Disclosure”). This information must be conveyed to the OJK at least 4 business days prior to execution.

The Second Disclosure of Information, which must also be at least bilingual, should include:

  1. The GMS resolution to approve the SS or RSS
  2. SS or RSS ratio
  3. Nominal share value before and after the SS or RSS
  4. Number of shares before and after the SS or RSS
  5. Timetable for carrying out the SS or RSS
  6. Timetable for the purchase of OLS or FS (if any)

c. Execution of SS or RSS

An SS or RSS must be carried out within 30 days of receiving GMS approval (“Execution Period”). This timetable is not applicable to an RSS aimed at increasing the capital of a public company.

For a rights issue, an RSS must be carried out at least 5 business days prior to distribution of the shares. For a private placement, an RSS must be carried out between 9 and 4 business days prior to the capital increase.

5. Postponement or Cancellation of SS and RSS

a. Postponement

A public company may postpone an SS or RSS at any time during the 30 days of the Execution Period (“Extension Period”), provided that:

  1. The stock exchange composite index is down 10% for 3 consecutive exchange days;
  2. A natural disaster, war, riot, fire, or strike significantly affect the business continuity of the public company;
  3. Other events significantly affect the business continuity of the public company
  4. The public company has not secured IDX in-principle approval for the listing of the shares that result from the SS or RSS; and/or
  5. The IDX postpones execution of the SS or RSS.

Upon the occurrence of any of the above, the public company must report the postponement to the OJK, and announce it to the public at least 2 business days: (i) prior to the end of the Execution Period, or (ii) after the public company has received IDX approval for postponement of the SS or RSS.

b. Cancellation

An SS or RSS is deemed to have been cancelled in the following circumstances:

  1. not completed within the Execution Period
  2. not completed within the Extension Period should there be a postponement; and/or
  3. the public company fails to obtain IDX approval for the listing of the shares resulting from the SS or RSS

Upon the occurrence of any of the above, the public company must report the cancellation to OJK, and announce it to the public at least 2 business days (i) prior to the end of the Execution Period or the Extension Period (in case of a postponement), or (ii) after the public company has received IDX notification that the SS or RSS shares have not been approved for listing.

C. ABNR Commentary

POJK 15 heralds a much-needed recalibration to tighten up protection for minority shareholders by requiring that public companies obtain IDX in-principle approval before conducting an SS or RSS. It also stipulates a longer lock-up period (i.e. 24 months) than the current 12-month period under the IDX listng rules, and prevents a public company from carrying out a private placement within 12 months of completion of an SS or RSS, unless it is to improve its financial health.

The IDX has yet to issue an implementing regulation for POJK 15, so there remains some uncertainty over the procedure for obtaining IDX in-principle approval, and as to when an appraisal report, and OJK consideration of it, will be required. As for the timeline for the issuance of the IDX regulation dealing with these and other technical matters, POJK 15 requires that it be issued within not more than three months following the coming into force of POJK 15 (i.e., the regulation should be issued by not later than 22 May 2023).

Overall, POJK 15 is an important move to strengthen protection for minority shareholders in Indonesia, given that in many instances the share price of a publicly listed company falls markedly upon execution of an SS or RSS, thus resulting in financial loss to retail shareholders. POJK 15 also sets out boundaries for public companies undertaking corporate actions that may dilute minority shareholdings.