INDONESIA (DOMESTIC FIRMS): An Introduction to Corporate/M&A

The Outlook for Mergers and Acquisitions in Indonesia

Indonesia’s M&A market has been, and is expected to continue, growing through the end of 2023. The Indonesian Business Market Competition Commission (KPPU) has reported that 106 mergers and acquisitions took place from January to September 2023. Notable deals include the acquisition of several prominent finance companies and the acquisition of a Europe-based luxury car producer and distributor. According to the report, the financial services, technology, media, and telecommunication (TMT), and energy sectors accounted for the majority of M&A activities in 2023. This is in keeping with the government’s efforts to lure more foreign investment to Indonesia, including through the issuance of new progressive regulations to relax barriers and codify multiple overlapping and scattered regulations into a single “Omnibus” law.

Regardless of the upcoming presidential election in 2024, the Indonesian government remains optimistic about the country’s investment outlook, projecting 5.2% growth in 2024.

More reasonable criteria for mandatory merger filing

The KPPU has clarified a few uncertainties on the criteria for mandatory merger filing by issuing Regulation No 3 of 2023 on Merger Filing (“KPPU Regulation 3/2023”) earlier in January 2023. KPPU Regulation 3/2023 sets detailed merger filing criteria as described below.

1. Prior to KPPU Regulation 3/2023, merger filing was previously required if any of the transacting parties have sales or assets in Indonesia. However, KPPU Regulation 3/2023 has changed this policy to the effect that the mandatory merger filing is only triggered if all transacting parties have assets or sales in Indonesia.
2. Previously, the “combined assets” element was calculated on a worldwide basis. KPPU Regulation 3/2023 now limits this to combined assets in Indonesia only, which makes more sense considering that KPPU’s concern should not go beyond Indonesia’s jurisdiction.

Flexibility in the health sector 

In August 2023, the Indonesian government enacted Law No 17 of 2023 on Healthcare (“Healthcare Omnibus Law”) to provide a new, integrated, more flexible regulatory framework for the provision of healthcare services. One of the highlights of the Healthcare Omnibus Law is the recognition of telemedicine services by healthcare service providers directly to patients.

The Healthcare Omnibus Law provides legal certainty on the practice of telemedicine services, which has been growing since the COVID-19 pandemic and fills the loophole for this type of service. This is also expected to boost investment in this sector.

Reforms in the financial sector 

In the financial sector, the Indonesian government has applied significant effort to reform various rules and regulations, among other things, by enacting Law No 4 of 2023 on Financial Sector Development and Strengthening (“Financial Omnibus Law”) to establish more attractive and clearer rules. The notable reforms in the financial sector include the following.

1. The Financial Omnibus Law acknowledges carbon as a tradable security under the purview of the Indonesia Financial Services Authority (Otoritas Jasa Keuangan or OJK) and the government has appointed the Indonesia Stock Exchange (IDX) as Indonesia’s Carbon Exchange operator. To further implement this, the OJK issued OJK Regulation No 14 of 2023 on Carbon Trading through the Carbon Exchange, providing much clearer underlying regulations on carbon trading in Indonesia.
2. The Financial Omnibus Law explicitly prohibits securities companies from simultaneously conducting (i) a sell-side business as a securities underwriter and broker, and (ii) a buy-side business as an investment manager. Existing securities companies that are still simultaneously conducting these activities are required to spin off one of their businesses, and the spin-off must be completed by 12 January 2024 at the latest.

Future M&A challenges in Indonesia 

1. 2024 presidential election – the upcoming presidential election in 2024 may impact the Indonesian M&A market throughout the year. The election period in Indonesia is often associated with a period of uncertainty, frequently causing businesses to withhold major investment decisions related to the country during the period. While the Indonesian government remains optimistic about the investment climate in 2024, foreign investors are expected to remain observant on whether the new President will continue the legacy of the current President, including the open economy and the move of Indonesia’s capital city from Java to Kalimantan.
2. Challenges facing (i) peer-to-peer lending (P2P) companies, and (ii) multi-finance companies (MFCs).
1. P2P lock-up period – the P2P sector has been subject to OJK’s licensing moratorium since 2020, and therefore the only way for investors to invest in the P2P sector is through the acquisition of an existing P2P company. However, finding the proper target P2P company may turn out to be challenging for several reasons. For example, the OJK through OJK Regulation No 10/POJK.05/2022 imposes a restriction that prohibits a P2P company from changing its shareholder composition and/or controller within three years from the issuance of its P2P business licence.
2. High capital requirement for MFCs – given the large number of existing MFCs in Indonesia today, the OJK encourages new investors to tap into this sector through mergers or acquisitions instead of greenfield investments. This policy aims to support existing MFCs that have difficulty meeting the minimum capital requirement of IDR250 billion (approximately USD16 million). The OJK anticipates that through mergers and acquisitions, new investors will be able to help target MFCs raise their capital to meet the minimum capital requirement set under OJK Regulation No 47/POJK.05/2020.