Bapepam-LK’s New Material Transactions Rules Facilitate High Yield Bond Issuances by Indonesian Listed Companies

 

On November 28, 2011, Bapepam-LK published new rules on Material Transactions and Change of Main Business Activities[1] (the “New Regulation”). The Bapepam-LK Chairman stated that the New Regulation aims to improve the previous Bapepam-LK Regulation No. IX.E.2 and simplify the obligations of listed companies seeking to issue debt securities[2].

Under previous regulations, a listed company issuer contemplating a high yield bond offering in principal amount representing over 50% of its equity book value faced difficult disclosure requirements. Specifically, such issuer was required to, among other things, (1) obtain prior shareholders’ approval for specific pricing-related terms through a General Meeting of Shareholders (“GMS”) well before the commencement of the debt offering (and indeed before many of the key terms of the offering could be determined by the market), (2) disclose the identity of purchasers (who often are unknown at that time) and (3) announce the transaction in the Indonesian language in at least one national Indonesian daily newspaper. This requirement seriously impeded the ability of a listed company in Indonesia to issue high yield bonds in principal amount representing over 50% of its equity book value, as it effectively prevented market based book-built pricing methods.

While the New Regulation retains the abovementioned requirements generally, Paragraph 2c of the New Regulation exempts listed companies from the disclosure and GMS requirements. Paragraph 2c states:

"Where a company enters into a Material Transaction[3] as mentioned under paragraph b and that company issues debt Securities[4] where the identity of the purchaser(s) of such debt securities are not yet known, then the relevant information:

• relating to the purchaser(s) and the summary of the valuation report by the independent appraiser is not required to be disclosed; and
• relating to the value of the size of the offering, the interest rate and value of security (if any) is presented in its maximum value.”

The effect of the New Regulation is to allow listed companies in Indonesia to obtain shareholders’ approval of general maximum economic terms of a proposed offering, enabling issuers to conduct book-built offerings and have timely and efficient access to the debt capital markets. This will facilitate international debt offerings by listed companies in excess of 50% of its equity book value.

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[1] The new rules relate to Bapepam-LK Regulation No. IX.E.2, Attachment of the Decision of the Chairman of Bapepam-LK No. Kep-614/BL/2011

[2] For the full text of the press release, please [click here]. The New Regulation can be downloaded [here].

[3] as defined in the New Regulation

[4] idem.  

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O'Melveny & Myers LLP is not licensed to practice law in Indonesia, and this Client Alert should not be construed as providing advice concerning the laws of Indonesia or of any other country or jurisdiction. The foregoing should not be construed as an opinion on the laws of Indonesia. Readers should consult with Indonesian counsel for legal advice on the matters addressed herein.

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