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INDONESIA: An Introduction to Capital Markets

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Indonesia: Capital Market Overview  


Indonesia, South-East Asia’s largest economy, has been going strong in its economic recovery initiatives following the tremendous blows that the country had experienced at the beginning of the COVID-19 pandemic. An astonishing new 1.5 million capital market investors were recorded from January to October 2021, making it the fastest ever investor growth rate in the country. The Indonesian capital market also saw the highest number of newly listed companies as of November 2021, which is higher than Thailand, Singapore and any other South-East Asian country. The Indonesia Stock Exchange (“IDX”) has recorded that as of November 2021, 40 companies spanning across major industries, including PT Bundamedik Tbk. (healthcare), PT Tbk. (e-commerce), PT FAP Agri Tbk. (palm oil), and PT Dayamitra Telekomunikasi Tbk. (Mitratel) (telecommunications) have listed and traded their shares on the IDX. The mega IPO of Mitratel, a subsidiary of state-owned PT Telkom Indonesia (Persero) Tbk. was also hailed as the second largest IPO in the history of the IDX to date with a value of around US$1.32 billion. These are all positive developments compared to 2020, which had low to almost zero capital market activity. Not only are these developments reassuring signs of brighter days ahead, but also undoubtedly show a massive return of public confidence and investor appetite in Indonesian capital markets.

Indonesia has also been continuing its efforts to spearhead the largest economic regulatory reforms in history to attract global investors and to facilitate ease of doing business in Indonesia, which started in 2020 with the enactment of Law No. 11 of 2020 on Job Creation (“Job Creation Law”). This law introduced new systems for improving the investment and business ecosystem, adjusted some aspects of employment and amended 78 regulations to facilitate ease of doing business and business licensing, all with the aim to attract investors to Indonesia.

The Job Creation Law also championed the importance of the creation of the first ever Indonesian sovereign wealth fund, the Indonesia Investment Authority (“INA”). Based on various public sources, in 2021, the INA made its pioneer landmark investment in the IPO of Mitratel with an investment value of around US$800,000,000.

As a follow up to its 2020 initiatives, in 2021, the Government enacted 49 new implementing regulations of the Job Creation Law, one of which was the integrated risk-based investment licensing system under the Online Single Submission of Risk-Based Assessment (OSS-RBA). Consistent with the spirit of the Job Creation Law under the leadership of the President of Indonesia and his Government, the IDX and Indonesian Financial Service Authority (“OJK”), likewise, issued a series of regulatory reforms to not only allay investors’ concerns and enhance the protection of companies, stakeholders and the public, but also to set the scene for increasing foreign investment into the country. Regulations in the 2021 to 2022 pipeline also exhibit a heightened awareness and recognition of the potential contributions of Indonesian tech companies in Indonesian economic growth.

This overview shines a spotlight on some of the recent regulatory advances in Indonesian capital markets that started out in 2020 and continued until 2021, all resulting in a better way of doing business in Indonesia. The overview will also touch upon the positive regulatory outlook for Indonesian capital markets in 2022. All of these exemplify the OJK’s efforts to continuously redefine, empower and ultimately perfect its governance of Indonesian capital markets to be at par with, if not better than, well-developed capital market jurisdictions.

Notable 2020 regulations 

As a practical and emergency response to the COVID-19 pandemic, the OJK immediately issued OJK Regulation No. 16/POJK.04/2020 on electronic general meetings of shareholders and OJK Regulation No. 41/POJK.04/2020 on electronic IPO and its implementing regulation under OJK Circular Letter No. 15/SEOJK.04/2020 (“e-IPO Regulations”), to relax capital market activities and ease the submission mechanism and processes. These regulations were received positively by companies and stakeholders who were able to carry out corporate actions despite government imposed COVID-19 physical restrictions. In addition, the e-IPO Regulations were aimed to increase and ensure greater participation of public/retail investors for better liquidity through the minimum percentage of pooling allotment and a “clawback” mechanism. In the past, public shareholders would only participate in an IPO at a minimum percentage as there was no minimum percentage for the pooling allotment. Today, the minimum pooling allotment will be determined based on the expected IPO proceeds.

The OJK also introduced fundamental reforms in key securities regulations to protect the interest of companies and the public. For instance, OJK Regulation No. 42/POJK.04/2020 (“POJK 42/2020”) was enacted to, among others, broaden the coverage of what are classified as “affiliated transaction” and “material transaction” that should be disclosed to the public while adding a higher financial ratio (i.e. quantitative criteria) as basis for the classification. POJK 42/2020 forces publicly listed companies to comply with more stringent disclosure requirements to ensure that material, affiliated and/or conflicting transactions are implemented in accordance with customary arms-length business practices.

In December 2020, the OJK also revised the crowdfunding regulation under OJK Regulation No. 57/POJK.04/2020. Under this new regulation, a licensed crowdfunding operator can offer both equity and debt securities to the public. This would allow micro or small-scale public offering of securitised loans and project financing.

Notable 2021 Regulations 

POJK 3/2021 

As Indonesian capital markets persisted to gain stable ground, in February 2021, the OJK announced a major regulatory overhaul through the issuance of OJK Regulation No. 3/POJK.04/2021 on the implementation of capital market activities (“POJK 3/2021”). POJK 3/2021 is expansive, covering several sections and activities in Indonesian capital markets, such as the stock exchange, clearing agencies, various types of securities businesses, securities companies, fund managers, rating agencies, share registrars, trusteeship agencies, supporting professionals and rules on publicly listed companies. POJK 3/2021 also covers procedures for permits, approvals, registrations, and sanctions of the OJK.

Please see below some of the key highlights of POJK 3/2021:

 ● Designation of controlling shareholder(s) and expansion of liability of controlling shareholders, Board of Directors and Board of Commissioners of a publicly listed company

Under POJK 3/2021, the OJK now requires the mandatory designation of controlling shareholder(s) for publicly listed companies and expands the threshold of liability by holding the controlling shareholder(s), Board of Directors and Board of Commissioners liable for their wrongful actions that cause losses to the publicly listed company. The rationale for this is to ensure that the people responsible for taking decisions in a publicly listed company are held accountable for their actions and that would in turn discourage mismanagement and promote good governance in the company. However, it should be mentioned that, in practice, the mandatory designation of a publicly listed company’s “controlling shareholder” may raise issues, especially if the publicly listed company has no “controlling shareholder” or if there is an open issue as to who among the shareholders is the “controlling shareholder”. At any rate, this designation will only be relevant for the first registration statement to the OJK (i.e. required for new companies intending to conduct an IPO) or when there is any change of control in a publicly listed company. The designation of who is the controlling shareholder of a publicly listed company shares a similar objective with the requirement to disclose the beneficial owner (the ultimate individual person who has control of the company) under Presidential Regulation No 13 of 2008 for more identified accountability.

● Going Private 

POJK 3/2021 also now provides for more routes on how a publicly listed company can become a private company. Currently, there are three triggers when a publicly listed company can become a private company: (i) by initiative of a publicly listed company; (ii) by order of the OJK; and (iii) through an application lodged by the IDX. The first route is a clear option of the publicly listed company, while the other two can be viewed as “consequences” for not properly managing a publicly listed company and failing to comply with OJK rules and regulations or IDX-related decrees. These “consequences” deter non-compliance by publicly listed companies of the OJK and IDX rules while incentivising those that are compliant.

POJK 3/2021 also introduced the concept of “shares buyback” as a mechanism for publicly listed companies to become private companies. This is a significant addition because, in the past, going private was only achieved by publicly listed companies through a voluntary tender offer.

One flaw of POJK 3/2021 is that it still does not provide for a “squeeze-out” mechanism which would allow the compulsory sale of the shares of certain minority shareholders. In the past, many publicly listed companies opting to go private encountered difficulties to contact their minority shareholders and, therefore, failed to meet the minimum 50 shareholders requirement for changing its status from a publicly listed company to a private company. A clear “squeeze-out” mechanism would have addressed this issue.

Other POJK Regulations  

Market Stability 

OJK Regulation No. 7/POJK.04/2021 on the other hand, declared the OJK’s authority to determine and implement certain policies to maintain the performance and stability of Indonesian capital markets until 31 March 2022. This includes, for example, the relaxation of timelines in submitting certain periodic and incidental reports. The relaxation and exemption policy was further detailed in OJK Circular Letter No. 20/SEOJK.04/2021 which provides for extension of the validity period of the financial statements of issuers or IDX public companies for corporate actions, from the previous 6 months to 8 months, at the latest.

Investor Protection 

The OJK continues to provide protection for investors to feel more at ease and safe in conducting transactions. The OJK issued OJK Regulation No. 65/POJK.04/2020 and OJK Circular Letter No. 17/SEOJK.04/2021 which highlight, among others, the return of any illegal profits to avoid losses arising from violations of capital market laws and regulations. Under these rules, the OJK may order for the return of illegal profits to be deposited into an Investor Loss Compensation Fund for the benefit of disadvantaged investors.

Adjustment to the Issuer's or Public Company's Annual Report.

The newly enacted OJK Circular Letter No. 16/SEOJK.04/2021 revoked the previous regulation on the form and content of the Annual Report and provides a guide to assist issuers and public companies with preparing their annual and sustainability reports.

Important developments and prospects in 2021 and beyond

A final issue worth noting is OJK’s more open and receptive approach towards new, tech-enabled, businesses or products. The IPO of Bukalapak, an Indonesian e-commerce unicorn, in August 2021 was hailed as the largest IPO in the Indonesian tech space. On 17 May 2021, GoJek, a local startup that has reached the status of a “decacorn” startup has announced its “merger” with Tokopedia, an Indonesian e-commerce unicorn with a reported combined valuation of around US$18 billion and created the new holding company, the GoTo Group. The merger itself was not per se a legal merger, but an organisational restructuring to foster the future growth of GoJek and Tokopedia as independent operating companies. The market also anticipates a potential IDX listing of the GoTo Group in 2022 that may easily take the existing crown of Bukalapak as the biggest IPO in Indonesian capital market history, as well as the IDX listing of other well- known Indonesian e-commerce and tech platforms.

The market also witnessed the emergence of several new startups engaged in stock brokerages, cryptocurrencies trading, fund managers or mutual fund agents incorporating certain elements of robo-advisory. The OJK has also started to run a sandbox on robo-advisory within its Digital Financial Innovation department.

In June 2021, the OJK introduced the draft of the regulation on Multiple Voting Shares, which will set the path for the dual-class share (DCS) system through the issuance of shares with multiple voting rights (MVS). This regulation aims to entice tech companies to bloom and grow in the domestic capital markets by levelling the playing field of IDX with other global exchanges, such as SGX, HHKEX, NYSE and Nasdaq which already apply the DCS through MVS system.

Aside from the above OJK initiatives, there are also plans for the IDX to update its listing requirements to accommodate the listing of startup or tech companies that are not yet profitable and/or do not have tangible assets. Public sources also indicate that IDX is evaluating if the Special Purpose Acquisition Company (SPAC) mechanism can be accommodated for an IDX listing as a simpler and faster process compared to the conventional IPO. This practice is very common in the US to entice non-US tech companies to conduct a dual listing to penetrate US capital markets and exchanges. It is still too early to tell if these OJK and IDX initiatives will come to fruition, but they at least provide a hopeful climate of an adaptive and evolving capital market environment which favours the tech industry and recognises its huge potential in Indonesia.

All of these are in line with OJK’s visions to deepen the capital market outreach to go more retail, both at the issuer side and the investor side, and to encourage more startups or tech-based companies to list at IDX. Hopefully, this would create a more robust environment for the market to flourish despite the challenges posed by COVID-19 or the rigidity of other current legal structures.


About Makes & Partners 

Makes & Partners is a Band 1 Firm in Capital Markets and “the best independent law firm in the capital markets space in Indonesia, often working on complex and often precedent-setting capital markets deals.” The Firm advised on the first privatisation of an Indonesian state-owned company, and its dual listing in the NYSE and NASDAQ in 1995, and on the first initial public offering of an Indonesian real estate investment trust on the Singapore Exchange in 2006. Makes & Partners also represented the domestic and international banks in the mega US$1.32 billion IPO of Mitratel in November 2021, which is hailed as the second largest IPO in Indonesia to date.

The Firm's managing and founding partner, Dr Yozua Makes, and senior partner, Iwan Setiawan, are “pre-eminent lawyers in the field, with the gravitas, knowledge, and network to drive commercial outcomes” and are “recognised for their longstanding experience and Indonesian market connections”. Dr Yozua Makes is a member of the Supervisory Board of the Indonesia Investment Authority.

For more information about the Firm, its practice areas, and team, please visit its website at