On December 29, 2023, the Indonesia's Financial Services Authority (Otoritas Jasa Keuangan or "OJK") issued a new regulation, OJK Regulation No. 29 of 2023 (the "New Regulation"), which revokes the previous OJK Regulation No. 30/POJK.04/2017 (the "Previous Regulation"), regarding the buyback of shares issued by public companies. The New Regulation introduces several key updates, some of which appear to be market-friendly for relevant public companies to conduct block placements of treasury shares ("T Shares") through a subsequent resale of repurchased T Shares. Other changes include the prohibition of using loans as a source of funds for buybacks and the shortening of the deadline for completing buybacks.
Disclosure of Information
Both the New and Previous Regulations require a public company to disclose information regarding buyback of shares alongside its General Meeting of Shareholders ("GMS") announcement. The New Regulation expands this to include disclosure of the source of funds, which shall:
a) not significantly impact the public company's financial capabilities,
b) consist of internal funds, and
c) not consist of proceeds from public offerings or loans/debts.
In contrast, the proceeds from private placements (the issuance of new shares on a non-pre-emptive rights basis) are allowed as a funding source.
In terms of implementing the resale of T Shares, the New Regulation requires a public company to announce the disclosure of information to the public and submit the supporting documents to OJK no later than 5 business days prior to the commencement of the exercise period for the sale of T Shares through or outside the IDX. However, these prior notice requirements are not mandatory if the sale of T Shares meets the following conditions: (i) involves a large number of T Shares transferred at once, (ii) is conducted through private placement (penawaran terbatas), and (iii) the recipient's identity is unknown. In such cases, the public company must still announce the disclosure of information to the public and submit the supporting documents to OJK within 2 business days after the sale of T Shares. The information must include the names of the parties receiving the T Shares, the amount of shares transferred, the T Shares’ transfer price, and whether or not the buyer(s) have an affiliate relation with the public company.
The above exemption (non-mandatory prior announcement) under the New Regulation enables a public company to resell the T Shares by way of block or marketed placement, so long as the conditions are satisfied, which should be satisfied in the context of a traditional block trade or marketed placement and subject to the pricing requirements described below.
Limitation Period to Hold the T Shares
The New Regulation now states that the public company must transfer the T Shares within 3 years after the buyback. Shares may be transferred by a variety of permitted methods, including resale in a private placement, contribution to an employee/senior management share ownership plan, distribution to shareholders, withdrawal by way of a capital reduction or any such other method as may be approved by OJK, as described below. The transfer period can be extended for an additional 2 years if:
a) the public company has already transferred at least 10% of the T Shares that had been repurchased; or
b) the price of the T Shares over 3 years does not exceed the average buyback purchase price. This requires proof submitted to OJK within 2 business days after the 3-year period.
If these conditions are not met, the public company has only 1 more year to transfer the T Shares. During these extensions, a public company cannot do any more share buybacks unless the market conditions are significantly unstable.
Pricing
The New Regulation introduces a discount scheme for the resale of T Shares.
The pricing for resale of T Shares shall not be lower than the average repurchase price of the T Shares itself, and for the T Shares listed and traded on IDX, the price shall not be lower than either (i) the closing price of the daily trading on the IDX one day before the resale date or (ii) the average closing price within the last 90 days preceding the date of resale with discount of an up to 7.5%, whichever is higher.
This enables the resale of T Shares through private placement (penawaran terbatas) at a discounted rate to the prevailing market price. However, meeting the discounting conditions may be challenging, as the closing price of the daily trading on the IDX the day before the resale must be lower than the average closing price in the last 90 days (with discount) prior to such date of resale.
Methods of Transfer
In addition to the methods provided under the Previous Regulation, the New Regulation now allows for the transfer of T Shares through:
a) settlement of transactions and/or
b) distribution to shareholders proportionally.
Given the above, the T Shares may now be used as settlement of a transaction (including share swap) and distributed to the shareholders as bonus shares, by taking into account the provisions under the applicable regulations.
Reporting Obligation
While the Previous Regulation only required a public company to report the implementation of the buyback of shares every 6 months, the New Regulation introduces fixed deadlines for the report, i.e., it should be submitted on 30 June and 31 December. Additionally, the New Regulation offers flexibility in reporting, including early submission if the buyback is completed before the said reporting periods.
Completion Timing
Previously, companies were required to complete the buyback of shares within 18 months from the date of the GMS approving such buyback. This timeframe has been reduced to 12 months from the date of GMS approval, under the New Regulation.
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