Background
As of August 28, 2024, OJK Regulation No. 4 of 2024 on Reporting of Ownership or Change of Ownership of Shares in Public Companies and Report for Share Pledging Activities in Public Companies (POJK 4/2024) will come into effect revoking OJK Regulation No. 11/POJK.04/2017 on Reporting of Ownership or Change of Ownership of Shares in Public Companies (POJK 11/2017). POJK 4/2024 requires that the disclosure of a reportable event must be made within five business days1.
Calculation of ownership: shares with voting rights
The reporting of ownership under POJK 4/2024 considers only “shares with voting rights”. This means that shares without voting rights are not taken into account, even if they represent more than 5% of the total issued shares. Conversely, shareholders of shares with multiple voting rights would be subject to reporting if their voting rights amount to more than 5% of the total voting rights, regardless of whether these shares represent less than 5% of the total issued shares.
The following parties are subject to the reporting requirements under this new POJK 4/2024 with respect to their shareholdings: any director or commissioner of the public company; any party holding at least 5% of the public company’s shares with voting rights; and Controller of the public company.
POJK 4/2024 introduces the term “Controller” as one of the parties required to report the ownership or change of ownership of shares with voting rights. While “Controller” remains undefined under the POJK 4/2024, under OJK Regulation No.9/POJK.04/2018, a Controller refers to as a party that directly or indirectly (i) owns over 50% of shares with voting rights in a public company; or (ii) controls the management or decision-making of a public company. POJK 4/2024 also mandates that any report of a change of shareholding made by a controller must include a statement confirming whether they continue to maintain their controlling position.
Calculation of change in ownership: “percentage units”
Under POJK 11/2017, the current regulation on shareholding reporting, the obligation to report applies to any change in shareholding by 0.5% of the total issued shares. Once POJK 4/2024 comes into force, the following threshold will apply: any reduction in ownership to below 5% of shares with voting rights; orany change in shareholding by a “percentage unit” of the shares with voting rights2.
This “percentage unit” refers to a change of shareholding percentage by a whole number, excluding its decimal values. Any change in fraction of POJK 4/2024 provides the following illustration of how the percentage unit calculation applies:
- A change of shareholding from 6.9% to 6.0 of shares with voting rights (a 0.9% change of shareholding), which would have been a reportable event in the POJK 11/2017, would no longer need to be reported.
- A change of shareholding from 6.99% to 7 of shares with voting rights (a 0.01% change of shareholding), which would not have been a reportable event in the POJK 11/2017, would now need to be reported3.
Any change in the shareholding percentage of a shareholder resulting from corporate actions undertaken by a public company, such as a rights issue or a non pre-emption rights issue, is not subject to reporting requirement of that shareholder.
New reportable event: pledge of shares
Other than changes in respect of shareholding report requirements, POJK 4/2024 also introduces a new requirement for a shareholder to report to the OJK any encumbrance of at least 5% of the total shares with voting rights in a public company owned by that shareholder. This threshold applies to a pledge of shares, whether in a single or series of transactions that accumulate to an aggregate of 5%. The “percentage unit” reporting approach also applies to any change of the total pledged shares. For example, an initial number of pledged shares is 5% and the pledgor increases the pledged shares to 6%. This change should also be reported to the OJK by the pledgor. That said, a change of less than 1% (e.g. 5.1% to 5.9) is not a reportable event.
POJK 4/2024 does not explicitly require disclosure on the name of pledgee or security grantee, but the other details that must be disclosed suggest that the OJK intends to collect information with respect to the underlying transaction for such encumbrance. This aligns with the general requirement for registration of a share pledge. The general elucidation of the POJK 4/2024 describes the objective of this pledge reporting requirement as being to encourage a more transparent information for the public. It is noted that the OJK intends to monitor this because the enforcement of share pledge may, to some extent, result in change of control in the public company.
Commentary
While transformative, the provisions under POJK 4/2024 leave unanswered practical questions, among others:
Derivative transactions other than “repurchase agreement"
POJK 4/2024 states “repurchase agreement” (where shares are sold with an expectation that the seller will buy back the shares after certain period or the occurrence of a certain event) falls under its scope. In this case the reporting party will be required to specifically set out in its disclosure if the transaction is subject to a repurchase agreement4.
POJK 4/2024 does not define the term “repurchase agreement” and we observe that certain share transfers may be subject to a derivative arrangement that includes “repurchase” feature. However, this may not necessarily be termed a “repurchase agreement”. It is unclear whether these are covered under the realm of POJK 4/2024, and would require an analysis on a case-by-case basis.
Other arrangements that do not create a security right
While encumbrance of shares by way of pledge or fiducia security is a reportable event, other arrangements that confers on powers or authorization over public company shares, which do not create a security interest under Indonesian law, are not reportable events under POJK 4/2024. Take, for example, a scenario in which the creditor has been granted a power to attorney to sell shares from the shareholder of a public company. In such event, that arrangement would not be a reportable event under POJK 4/2024, even though the exercise of such powers could have significant implications for the current shareholding of the relevant shareholders.
Reporting by organized groups
POJK 4/2024 provides that if multiple owners of shares with voting rights are organized into a group (the Organized Group), the reporting requirement is carried out by a shareholder appointed by the Organized Group5. The reporting must include information about the details on the members of the Organized Group6. The Organized Party needs to designate one party as the reporting party and be cautious if the designated party failed to report it will also have implications for the other member of the Organized Group.
Impact of treasury shares to the implementation of the reporting obligation
Note that under Indonesian law, a public company may buyback and hold up to 10% of its shares and such bought-back treasury shares are not counted towards the total shares with voting rights. Therefore, in assessing whether a shareholder is subject to POJK 4/2024, it may also consider whether there is any treasury shares and to exclude them from the calculation of the total voting rights in the company. This will be difficult to track since in practice the reporting of implementation of the buyback (and subsequent release of such treasury shares) are not always reported on time by public companies if at all. This may make it difficult for shareholders to know the exact percentage of its ownership of shares with voting rights, and for a prospective buyer/seller with regard to the reporting requirement applicable to them under POJK 4/2024.
If you wish to explore the above further, please contact Ginting & Reksodiputro in association with A&O Shearman.
Footnotes
1. This is consistent with Article 87 of Law No. 4 of 2023 on Development and Strengthening of the Financial Sectors which introduced the 5-business day reporting requirement since 12 January 2023.
2. Art. 2 (3), (5) of OJK Regulation 4/2024
3. Elucidation for Art. 2 (5) of OJK Regulation 4/2024; Compare against Art. 2 (3) of OJK Regulation No. 11/POJK.04/2017
4. Elucidation for Art. 4 (1) d of OJK Regulation 4/2024; Annex 1 of OJK Regulation 4/2024
5. An Organised Group is defined as parties that makes plans, agreements or decisions to cooperate for a certain purpose
6. Art. 4 (1) of OJK Regulation 4/2024
