Market Condition Pushes the OJK to Relax Buyback Procedures
The OJK, Indonesia's financial services authority, recently issued a circular that allows all issuers or public companies to conduct a buyback of shares without convening a general meeting of shareholders. In OJK Circular Letter No. 3/SEOJK.04/2020 on Other Conditions as Significantly Fluctuating Market Conditions in the Implementation of Shares Buyback by Issuers or Public Companies ("Circular"), the OJK states that the trading condition in the Indonesia Stock Exchange ("IDX") has experienced significant pressure as evidenced by the decline in the Composite Stock Price Index (IHSG) by 18.46% from the beginning of 2020 until the date of the Circular. The economy is also slowing down due to regional and national pressure, including as a result of the COVID-19 outbreak ("Market Conditions").
In the Circular, OJK states that the revision to the buyback procedure is an attempt by the government to provide economic stimulus to the market and at the same time reducing the adverse impact from the current market condition.
An issuer or a public company can now conduct a buy back without obtaining prior approval from the general meeting of shareholders as regulated under OJK Regulation No. 2/POJK.04/2013 on Shares Buyback Issued by Issuers or Public Companies in Significantly Fluctuating Market Conditions ("OJK Regulation No. 2/2013").
In the Circular, an issuer or public company can buy back a maximum of 20% of its issued and paid-up capital1, provided that at least 7.5% of its issued and paid-up capital continue to be held by the public. An issuer or public company can initiate the buyback by submitting a disclosure statement to OJK and IDX at the latest seven trading days after OJK determines the existence of the Market Conditions.
The disclosure must include information on:
estimated schedule, buyback fee and the nominal value of the buyback shares;
estimated decrease of the issuer or public company's revenue as a result of the shares buyback and impact on the financing cost;
proforma of profit per company's share after the implementation of the shares buyback by considering the decrease of revenue;
restriction on the share price for the shares buyback;
restriction of the shares buyback period;
the method that will be used for the shares buyback; and
discussion and analysis of the management on the effect of the shares buyback on the issuer or public company's business activities and future growth.
Upon submission of the disclosure, the issuer or public company must conduct the buyback within three months after the date of the disclosure.
The issuer or public company will then have three years after the completion of the buyback to hold the shares purchased from the buyback. After the lapse of such three-year period, the issuer or public company will have two years to transfer the shares purchased from the buyback, with an additional one year if it fails to transfer all shares within two years.
OJK Regulation No. 2/2013 provides that the shares purchased from the buyback may be transferred by way of:
sale through the IDX or outside the IDX;
withdrawal through capital reduction;
implementation of an employee's stock option plan or employee's stock purchase plan;
implementation of debt conversion into the company's shares; and/or
implementation of warrants.
- The 20% of issued and paid-up capital limit will consider other forms of buyback conducted by the issuer or public company.
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.