The Investment Coordinating Board (“BKPM”) recently issued a set of important new rules on investment licensing and other procedures, covering both Indonesian domestic direct investment companies (PMDN) and foreign direct investment companies (PMA).
Other Key Features
Aside from potential questions as to whether a BKPM regulation is the appropriate vehicle for restricting the scope of the term “portfolio investment,” as used in the Investment Act (Law No. 25 of 2007), perhaps the most significant consequence of the new regulation is that it appears to clear up, for good or for bad, the previous confusion over whether portfolio investments by non-Indonesian entities in Indonesian public companies constitute direct or indirect investments. Prior to this, the consensus among both legal and market practitioners, as well as academics, had been that portfolio investments by non-Indonesians should be treated as indirect investments, thereby exempting them from the Negative List. In other words, the prevailing view was that the stock market provided a means by which foreign investors could bypass the Negative List. However, the matter was far from clear-cut as there had been incidences in the past when this approach was departed from, such as the case where an investment by a Middle Eastern telecommunications provider in an Indonesian telco was disallowed by the Ministry of Telecommunications on the ground that it fell foul of the Negative List, despite the investment being made through the stock market. At the very least, investors will now know where they stand in this regard, although there is no doubt that most people in the investment community would have preferred to see portfolio investments continuing to be treated as indirect, and thereby outside the ambit of the Negative List
Unfortunately, the New Regulation fails to clarify whether a public company that was controlled by a foreign shareholder and engaged in a restricted business sector under the Negative List prior to the coming into effect of the New Regulation will be “grandfathered” under the previous rules and so not be subject to the new rules. This issue will obviously be of major concern to existing foreign investors and should be clarified as expeditiously as possible.
AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of AHP Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.