On 1 December 2021, the Financial Services Authority (Otoritas Jasa Keuangan or OJK) issued the long-anticipated regulation governing the implementation of classes of multiple voting rights share (“MVS”) under OJK Regulation No. 22/POJK.04/2021 (“Regulation”).
As the title of the Regulation suggests, MVS can only be implemented by issuers deemed as having innovation and high growth rate, specifically technology start-ups that intend to do an initial public offering (“IPO”) in Indonesia. Usually, there are concerns among start-up founders when conducting an IPO because of the potential dilutive effect on the founder’s ownership in the company, which in turn diminishes the founder’s ability to retain control of the company. By issuing the Regulation, the OJK signals to start-up founders that they can protect their vision after IPO. Concurrently, the Regulation also gives certainty to the public on who holds control over the company.
As we discuss below, the Regulation sets out the requirements for the implementation of the MVS, obligations imposed on the MVS holders, and specific requirements for the MVS issuer in implementing corporate actions such as private placement and rights issue.
Issuer Eligibility Criteria
An issuer that intends to implement MVS must fulfil the below criteria:
With respect to the last point, it is worth noting that the OJK may impose any other criteria at its own discretion. As at the date of this client update, the OJK has not issued any circular letter on these other criteria.
In addition to the above criteria, the issuer must regulate the terms of the MVS in its articles of association.
Term of MVS
Under the Regulation, an issuer’s MVS may only be valid for 10 years following the effective date of the issuer’s IPO registration statement. Upon extension, the issuer may extend the MVS’ validity for another 10 years, subject to approval from its independent shareholders in a general meeting of shareholders.
In addition to the above limit, the Regulation prohibits MVS holders from transferring all or part of their MVS for two years after the effective date of the IPO registration statement.
Besides regulating lock-up for MVS holders, the Regulation also prescribes a lock-up on the issuer’s existing ordinary shareholders. If the book value per share recorded in the issuer’s latest financial statement is lower than the IPO price, then all existing ordinary shareholders of the issuer must not transfer all or part of their shares in the issuer for eight months after the effective date of the IPO registration statement.
Transfer of MVS
After the end of the MVS lock-up period, any MVS holder that intends to transfer its MVS must:
The issuer will also be required to disclose the proposed transfer of the MVS at the latest one business day after receiving information of the transfer from the MVS holder.
An issuer that implements MVS must implement a voting ratio of the MVS against the ordinary shares in the following proportion:
|Percentage of MVS Ownership in the Issued
and Paid-up Capital of the Issuer
|Voting Rights Ratio
(MVS : Ordinary Shares)
|Between 10% and 47.36%||10:1|
|Between 5% and 10%||20:1|
|Between 3.5% and 5%||30:1|
|Between 2.44% and 3.5%||40:1|
The above requirement implies that the minimum economic percentage owned by all MVS holders in the issuer must be at least 2.44%.
The adjustment of the voting rights ratio will be done automatically, without requiring the issuer to amend its articles of association and will be calculated on each recording date of a general meeting of shareholders.
If the voting rights of the MVS holders become lower than 50% of all voting rights, then the voting rights ratio can be increased to up to 60:1 within six months after the MVS holders’ voting rights fall below 50%, subject to the approval from the issuer’s independent shareholders.
Eligible MVS Holders
Initial MVS holders must be determined in a general meeting of shareholders and disclosed in the IPO prospectus.
In addition, not everyone can become an MVS holder after the IPO. MVS holders must be:
If any of the MVS holder is an entity, such entity must:
Moreover, if the above entity is established solely for fundraising purposes, such entity will also have to be directly controlled by:
All MVS holders must have the same mission and act in concert in the general meeting of shareholders of the issuer. The MVS holders must also enter into a shareholders’ agreement that sets out each MVS holder’s commitment in implementing their vision and mission with respect to the issuer.
Lastly, the issuer must submit information on the MVS holders to the OJK when it files the IPO registration statement. These information must include:
The MVS will convert into ordinary shares if:
A change of control in the issuer that occurred due to the conversion of the MVS into ordinary shares as set out above will be exempted from the mandatory tender offer requirement under the law, except if the new controller has an active role in actions that lead to the conversion of the MVS into ordinary shares.
Corporate Actions by MVS Issuer
In addition to the terms and conditions of the MVS, the Regulation sets out specific requirements for MVS issuer in convening a general meeting of shareholders and further capital increase.
General meeting of shareholders
The attendance and voting quorums in a general meeting of shareholders convened by an MVS issuer must generally adhere to the existing OJK Regulation No. 15/POJK.04/2020.
Moreover, the general meeting of shareholders must be attended by holders of ordinary shares that represents at least 5% of all voting shares of all shareholders other than the MVS holders.
Further, an MVS holder will only be able to cast one vote per share for the following agenda (subject to other agendas as stipulated in the issuer’s articles of association):
If the issuer intends to conduct a rights issue, then aside from fulfilling the OJK regulation on rights issue, the issuer must also submit the following documents to the OJK as part of its rights issue registration statement:
If the rights arising out of the MVS is exercised by any party other than the MVS holder, the shares obtained as a result of the rights exercise will become ordinary shares.
An MVS issuer that intends to do a private placement issuance of shares can now issue up to 10% of its current issued and paid-up capital by obtaining approval from its general meeting of shareholders.
This is a more relaxed requirement compared to the current private placement regulation under POJK 32/POJK.04/2015 as amended by POJK No. 14/POJK.04/2019, which requires independent shareholders’ approval in a general meeting of shareholders. In addition, the 10% private placement limit must be exercised within one year upon receipt of the shareholders’ approval, which is significantly shorter than the two-year deadline imposed by the private placement regulations for listed companies.
An MVS issuer can also issue more than 10% of its current issued and paid-up capital in the private placement provided that such issuance is not more than 20% of its current issued and paid-up capital and the issuer has obtained approval from its independent shareholders in a general meeting of shareholders.
Further, the MVS issuer may implement a share award program, provided that:
An MVS issuer may also conduct private placement for the purpose of listing in other jurisdiction’s stock exchanges, provided that:
Joining other countries that have adopted MVS scheme to enable their start-ups to enter into capital markets, the Regulation signals Indonesia’s readiness to embrace the expansion of many of its homegrown unicorns. It also demonstrates OJK’s willingness to accommodate the needs of tech start-ups to list their shares in Indonesia, while also protecting the interest of public shareholders.
In line with the Regulation, the Indonesia Stock Exchange (“IDX”) has also issued the new listing regulation on 21 December 2021 to accommodate the listing of tech start-ups in the IDX. We will discuss this new listing regulation in a separate client update.
For now, we expect that the Regulation will encourage home grown unicorns to consider listing their shares in the IDX, which in turn will support economic growth in Indonesia.
Aji Suryo Utomo also contributed to this alert.