INDONESIA: An Introduction to Corporate/M&A

Japanese Foreign Direct Investment in the Indonesian Financing Sector

The last five years have seen an increase in the volume of M&A transactions involving Japanese financial institutions and Indonesian financing companies. Notable transactions include Mizuho Leasing Co Ltd’s acquisition of PT Verena Multi Finance Tbk in 2022 and Mitsubishi UFJ Financial Group’s acquisitions of Mandala Finance (MFIN) and Home Credit Indonesia through its subsidiary Adira Dinamika Multi Finance Tbk (ADMF). Most recently, in October 2024, Business Partner Co Ltd, a Japanese financing and leasing company, acquired 85% of shares in PT TEZ Capital and Finance.

The transactions have led to Japanese dominance in the Indonesian financing industry. According to research conducted by Biro Riset Infobank in 2022, Japanese-affiliated Indonesian financing companies accounted for approximately 40% of assets in the Indonesian multifinance industry. Their financing, in turn, held 40.48% of the total industry financing, which amounted to IDR412.41 trillion. In terms of profit, they accounted for 26.82% of the total market share.

These transactions have been welcomed by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK). Speaking to Bisnis Indonesia, OJK’s chief executive of the supervisor of financing institutions, venture capital companies, microfinance institutions, and other financial services institutions anticipates such acquisitions to strengthen the multifinance industry by boosting capital and advancing product development.

A growing population, combined with the country’s persistently low credit card penetration, makes Indonesia a promising market for foreign financial institutions to expand their consumer base beyond a domestic market.

Regulatory Developments

Financing companies in Indonesia are overseen by the OJK. They are classified as non-bank financial institutions (Lembaga Jasa Keuangan Non-Bank). In addition to being governed by general laws applicable to limited liability companies, they are also subject to special regulations that apply specifically to them. These include OJK Regulation No 47 POJK.05/2020 of 2020 Concerning the Business Licensing and Institutional Aspects of Financing Companies and Sharia Financing Companies (OJK Regulation No 47/2020).

Among other provisions, OJK Regulation No 47/2020 prescribes special requirements on the acquisition of financing companies, including the requirement to obtain prior approval and subsequent post-acquisition reporting to the OJK.

Based on the provisions of OJK Regulation No 47/2020, the procedure to apply for an OJK approval in the event of a change in shareholding composition is as follows.

Application and issuance of OJK approval

Under Article 71(1) of OJK Regulation No 47/2020, a financing company intending to conduct a change in shareholder composition must obtain prior approval from the OJK. The application for the approval will be filed by a member of the board of directors by enclosing the required documents, which include: the draft share sale and purchase deed (if a share sale and purchase transaction occurs among the shareholders); the draft transfer of rights over shares deed (if the shareholding change occurs by way of a transfer of rights over shares not based on sale and purchase); and a copy of the co-operation agreement with the foreign legal entity shareholder and the Indonesian shareholder for transactions conducted with a foreign party.

The OJK will issue their rejection or approval of the above application within 20 working days after the application is deemed complete (ie, the applicant has submitted all the required documents in full).

Execution of the general meeting of shareholders (GMS) to approve a change of shareholder (if so required in the financing company’s articles of association)

Article 75 of OJK Regulation No 47/2020 provides that if a change in shareholding requires GMS approval, the financing company will convene a GMS to approve the shareholding change within 60 working days of the issuance of the OJK approval. If no GMS is held within that timeframe, the OJK reserves the right to cancel its approval of the shareholding change.

Post-acquisition reporting to the OJK

Based on Article 76(1) of OJK Regulation No 47/2020, a financing company is required to report on the execution of the shareholding change to the OJK within 15 working days. This period is calculated from the issuance of the letter of the notification receipt from the authorised institution.

Before the Prabowo administration, the authorised institution in that case would have been the Ministry of Law and Human Rights. However, this institution has since been divided into two separate ministries: the Ministry of Law and the Ministry of Human Rights.

The post-acquisition report to the OJK must be filed by a member of the board of directors by enclosing the required documents, including:

1. a copy of the deed of the minutes of the GMS approving the change of ownership, which is accompanied by a letter of notification receipt from the authorised institution;
2. a copy of the deed of transfer of rights over shares, if there is a transfer of rights over shares other than based on sale and purchase;
3. a copy of the deed of sale and purchase, if there is a sale and purchase of shares between shareholders;
4. a copy of the deposit receipt of additional paid-in capital, if a paid-in capital injection is made; and
5. a copy of the company's financial statements after the increase in paid-up capital, signed by the board of directors of the company.

Furthermore, in acquiring an Indonesian financing company, foreign entities must also take into consideration that direct or indirect foreign ownership is limited to no more than 85% of the financing company’s paid-up capital per Article 9(1) of OJK Regulation No 47/2020. However, the 85% foreign ownership restriction may be waived if:

1. the financing company is a public company with shares sold on the stock exchange;
2. the financing company requires a capital injection from its foreign shareholder due to any of the following reasons:
   1. it fails to meet the minimum capital and equity ratio: and/or
   2. it is experiencing liquidity problems, which may disrupt the financing company’s business sustainability; and
3. the financing company was established specifically to conduct business in the electricity and/or shipping sectors.

Where the 85% foreign ownership limit is exceeded for these reasons, the financing company will be required to adjust the foreign ownership limit within a period approved by the OJK.

Key Takeaways

Indonesia is currently perceived as an attractive financing market by Japanese financial institutions due to growing demand for loans.

M&A transactions involving Indonesian financing companies must take into consideration several requirements from the OJK, including the need to obtain prior approval from the OJK for the transaction and the obligation to report on its implementation.

The current regulatory landscape for the Indonesian financing industry welcomes foreign investment. While direct and indirect foreign ownership of an Indonesian financing company is limited to 85%, there are exceptions that would allow an exemption to this limit, including sector-specific exceptions applicable for financing companies in the electricity and/or shipping industries.