Private placement is a strategic method for Indonesian companies to raise capital by offering securities directly to selected investors, bypassing a public offering. Governed by the Capital Market Law and regulations from the Financial Services Authority (Otoritas Jasa Keuangan or OJK), private placement has become a popular fundraising option due to its streamlined process and lighter disclosure requirements compared to Initial Public Offerings (IPOs). This overview provides insight into the legal landscape of private placements in Indonesia, with an emphasis on regulatory requirements.

Private Placement Basics and Key Regulations

A Private Placement involves a capital increase by a public company without giving existing shareholders the right to buy new shares, which leads to dilution of their ownership percentage. In contrast to a Rights Issue, a Private Placement does not grant pre-emptive rights to existing shareholders. This procedure is regulated by Financial Services Authority Regulation No. 38/POJK.04/2014 on Capital Increase of Public Companies Without Granting Pre-emptive Rights (“OJK Regulation No. 38/2014”).

According to Article 2 paragraphs (1) and (2) of OJK Regulation No. 38/2014, a Public Company can conduct a Private Placement to improve its financial position or for other purposes, subject to approval by the General Meeting of Shareholders (GMS). Article 3 further specifies that a Private Placement aimed at financial improvement may proceed under these conditions:

1. The Public Company is a bank that has received loans from Bank Indonesia or other government bodies exceeding 100% of its paid-up capital or faces other circumstances that could result in bank restructuring by the relevant government authority;
2. If the Public Company is not a bank, it has negative net working capital and liabilities exceeding 80% of its assets at the time of the GMS approving the Private Placement;
3. The Public Company cannot meet its maturing financial obligations to an unaffiliated lender, provided the lender agrees to accept shares or convertible bonds in settlement.

Additionally, per Article 4 of OJK Regulation No. 38/2014, a Public Company wishing to conduct a Private Placement for purposes other than financial improvement may only issue up to ten percent (10%) of its paid-up capital, as stated in the amended articles of association submitted to the relevant Minister at the time of the GMS announcement.

Private Placement Process According to OJK Regulation No. 38/2014

Furthermore, below is a brief outline of the Private Placement process based on OJK Regulation No. 38/2014, with the following mechanism:

1. Announcement of Information Disclosure: The Public Company must disclose information about the private placement to shareholders, coinciding with the GMS announcement. This information and supporting documents must be submitted to the OJK in both print and electronic forms at the time of the GMS announcement, remaining accessible to shareholders until the GMS is held.
2. Updates on Disclosure: Any changes or additional information in the disclosure must be announced to shareholders and submitted to the OJK no later than two working days before the GMS.
3. GMS Approval: Conduct the GMS to obtain approval for the Private Placement.
4. Pre-Placement Announcement: At least five working days before the private placement, the Public Company must publish an announcement in an Indonesian-language daily newspaper, on the Stock Exchange website, and on the company’s website, with proof submitted to the OJK no later than two working days after the announcement.
5. Post-Placement Announcement: After the private placement is conducted, the Public Company must notify the public and the OJK of the results within two working days via an Indonesian-language daily newspaper, the Stock Exchange website, and the company’s website. Proof of this announcement must be submitted to the OJK no later than two working days afterward.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author:
Dewi Susanti