NEW REGULATION ON BUYBACK OF SHARES OF PUBLIC COMPANY
The Financial Service Authority or Otoritas Jasa Keuangn hereinafter called OJK, has recently issued regulation number 30/POJK.04/2017 (POJK 30/2017) on Buybacks of Shares of Public Companies. The new regulation was issued to implement Law Number 21 of 2011 on the establishment of Financial Service Authority, in which the functions, duties and authorities with regard to the organization and oversight of financial service activities in the capital market, including the buyback of shares issued by public companies, has been duly transferred from the Capital Market and Financial Institution Supervisory Agency (BAPEPAM- LK) to the Financial Service Authority. The new regulation provides clarity and certainty to buyback shares of public companies. It also sets the sanctions if the regulations are violated.
Basis to buyback shares
Basically, buyback shares of public companies are allowed by Law number 40/2007 on the Limited Liability Companies. Article 37 and 39 of the Law 40/2007, regulate specifically the conditions to buy back of the shares of the public companies as follows:
- it does not cause the net assets of the company becomes less than the subscribed capital plus the mandatory reserves that has been set aside; and
- the total nominal value of all the shares repurchase by the company and the pledge of shares or the fiduciary security on shares held by the company itself, and/or other company which shares are directly or indirectly owned by the company does not exceed 10% of the total amount of capital subscribed in the company, unless otherwiseprovided in legislative regulations in the field of capital markets.
Meanwhile, Article 62 of Law 40/2007 allows company to repurchase its shareholders’ shares if the shareholders concerned do not approve companies’ action which harm the shareholders or the company in the form of:
- Amendments to the articles of association;
- Transfer or the securing of the company’s assets which have a value of more than 50% of the company’s net assets; or
- Mergers, consolidations, acquisitions, or demergers.
Obligation to obtain the Approval of GMS
According to Article 38 of Law 40/2007 and Article 2(3) of POJK 30/2017, buyback of shares under Article 37 and 29 of Law 40/2007 may be conducted only after obtaining the approval of General Meetings of Shareholder (hereinafter GMS). POJK 30/2017 obliged all public companies to conduct GMS in accordance with OJK Regulation number 10/POJK.04/2017 on the Amendment to OJK Regulation number 32/POJK.04/2014 on the Planning and Organization of General Meetings of Shareholders for Public Companies (hereinafter POJK 10/2017). Previously, Regulation XI.B.2 obliged the GMS to be conducted in accordance with BAPEPAM-LK Regulation number KEP-179/L/2008 on Principles of Article of Association of Companies Dealing in Security Equity Public Offers and Public Companies (hereinafter BAPEPAM-LK 179/2008).
The implementation of buyback of shares
Beside the GMS approval, there are several requirements to be complied by the public companies relating to shares buyback based on POJK 30/2017:
a. The buyback of shares under Article 37 and 39 of Law 40/2007 shall be completed at the latest 18 months after the date of GMS approval.
b. The buyback of shares may be conducted through a stock exchange or outside stock exchange.
c. The public companies shall report to OJK regarding the result of the buyback of the shares for every six (6) months (July and December).
d. Public companies listed on stock exchange shall not repurchase its shares, if the buyback leads to any significant reduction in share liquidity within stock exchange.
e. Public companies undertaking the share buyback in accordance with Article 37 and 39 of Law 40/2007 are required to announce the information on share buyback to shareholders at the same time with GMS announcement. While in the case of the shares buyback carried out in accordance with Article 62 Law 40/2007, the announcement and disclosure information shall be carried out by no later than 2 days after GMS completion.
Redirection of Buyback shares
Shares acquired by the buyback shall be redirected within a period of three (3) years after the completion of shares buyback. If some shares still remains in the possession of the public companies, the remaining shares shall be redirected within maximum two (2) years. In the case that some shares cannot be redirected or has yet to be finished, it must be completed within the next one year. The shares shall be redirected through the following methods:
(a) By way of selling through stock exchange or outside stock exchange;
(b) Being recalled by way of capital reduction;
(c) Implementation of shares ownership program for employees and/or board of directors
and board of commissioners;
(d) Implementation of conversion of equity securities; and/or
(e) Other means approved by OJK.
As stated above, public companies undertaking buyback of shares are required to announce the information on share buyback while satisfying the principle of transparency.
(i) Buyback of shares under Article 37 and 39 of Law 40/2007.
Public companies shall announce the information on share buyback to shareholders at the same time with the GMS announcement, which should at least covers:
- Estimation of schedules, estimation of cost of buyback of shares, and estimation of total nominal value of all shares which will be repurchased;
- Explanation, consideration, and cause for the undertaking of buyback of public companies’ shares;
- Estimation of the decline of public companies’ revenue as a result of the undertaking of shares buyback and its impact towards the financing costs of public companies;
- Perform earning of public companies’ shares after the undertaking of share buyback, with due consideration being paid to the decline revenue;
- Limitation of share price for share buyback;
- Limitation of timeframe for share buyback;
- Methods which will be employed to buyback shares; and
- Management discussion and analysis as regards the impact of share buyback against business activities and growth of public companies in the future The proof of such announcement shall be submitted to OJK no later than 2 (two) business days after the announcement.
(ii) Buyback of shares under Article 62 of Law 40/2007
Public companies shall announce to public and submit information transparency to OJK the following information:
- Explanation as regards the undertaking of buyback of public companies’ shares;
- Identities of shareholders whose shares can be repurchased by public companies;
- Share price and procedures to determine said price; and
- The timeframe for the undertaking of share buyback.
The announcement and submission to OJK shall be carried out no later than 2 (two) days after the completion of GMS for the purpose of corporate action as referred to in Article 62 of Law 40/2007.
POJK 30/2017 sets out several administrative sanctions which has not been incorporated yet under Regulation XI.B.2, which are:
- Written warnings;
- Fines, by paying certain amount of money;
- Restrictions of business activities;
- Suspensions of business activities;
- Revocations of business licenses;
- Annulments of approvals; and/or
- Annulments of registrations.
The Financial Service Authority Regulation No40/2017 is issued with the view to ensure clarity and certainty concerning the buyback share of public company. Buyback shares of public companies previously was regulated by the regulation number Kep-105/BL/2010 issued by the Capital Market and Financial Institution Supervisory Agency (BAPEPAM-LK).