Indonesian Update: New Stock Exchange Regulation Simplifies Listing Procedure

On 26 December 2018, the Indonesian Stock Exchange (IDX) issued a new regulation (IDX Board of Directors Decree No. Kep-00183/BEI/12-2018 on Regulation No. I-A, regarding the listing of shares and equity-type securities issued by listed companies (“New IDX Listing Regulation”)). The New IDX Listing Regulation introduces certain changes to simplify listing procedures and broaden the financial criteria for listing, which is likely to increase interest from unicorn start-ups in listing their shares on the IDX. The new regulation came into effect on 27 December 2018.

The New IDX Listing Regulation also aims to accommodate some changes to the registration statement process for public offerings at Indonesia’s Financial Services Authority (OJK), with the OJK now ready to accept online submissions through SPRINT. Aside from the key changes elaborated below, the New IDX Listing Regulation restates most provisions found in the January 2014 listing regulation, which it replaces.

In short, the New IDX Listing Regulation changes several key aspects of the IDX listing procedures, including:  

The key changes are explained below.

Streamlined listing requirements and online applications

To simplify the listing procedures, the New IDX Listing Regulation has removed the requirement to appoint an independent director when applying to the IDX for listing approval. Several other pre-listing requirements have also been removed, including having an independent commissioner, audit committee, internal audit committee, and corporate secretary. These new requirements now indicate that good corporate governance of public companies will be under the supervision of the OJK.

The New IDX Listing Regulation requires that listing applications be made online once the IDX issues a detailed circular on the mechanism for electronic submissions, which is expected to be released in mid-2019. Until then, listing applications can continue to be made in person to the IDX by submitting the files on a flash disk, CD or another similar storage medium.

The number of documents needed for a listing application has been reduced significantly under the New IDX Listing Regulation. Companies are now only required to submit the following:

• Prospectus or preliminary prospectus;
• Taxpayer number (NPWP);
• financial projections for the next three years, with supporting assumptions and feasibility studies;
• proof of payment of the listing application fee;
• documents required from issuers engaged in a specific line of business (e.g., mining companies) that is regulated in a separate IDX rule (e.g., a report issued by an independent party which confirms that the company has a proven deposit);
• copies of concessions or licensing documents for issuers in the mining, forestry and toll road sectors; and
• disclosures and a declaration of compliance with the IDX rules, in the form prescribed in the New IDX Listing Regulation.

The IDX may also determine at its sole discretion the necessity for having a mini expose (a brief presentation to the IDX by the prospective listed company to present the operational and financial conditions of the company) on a case by case basis and hence there is no longer a mandatory mini expose requirement from the IDX. 

Principal listing approval

Under the New IDX Listing Regulation, the old two-step application process is no longer required. A listing application needs to be made only once, on the same date as document registration with the OJK, and using the prescribed form. If the OJK requires additional documents or changes to any of the registration documents, the company must submit these to the IDX at the same time. The IDX will issue its principal approval for the listing within 10 exchange days after receiving all required information and documents. The principal listing approval can later be revoked should any subsequent developments result in non-compliance with the listing requirements.

Broadening financial criteria for listing on IDX development board

The New IDX Listing Regulation also broadens the financial criteria for a listing on the IDX development board, requiring issuers to satisfy one of the following criteria:

• net tangible assets of at least IDR5 billion (approximately USD350,000); or
• profits for the last financial year of at least IDR1 billion (approximately USD70,000) and market capitalisation of at least IDR100 billion (approximately USD7 million) prior to the listing date; or
• revenues for the last financial year of at least IDR40 billion (approximately USD2.8 million) and market capitalisation of IDR200 billion (approximately USD 14 million) prior to the listing date.

The IDX is currently in the process of finalising and issuing a separate regulation for the listing of small and medium companies. That regulation is expected to be issued in mid-to-late 2019.

Prohibition on conducting stock split or stock reverse within 12 months

The New IDX Listing Regulation prohibits a listed company from conducting a stock split or stock reverse less than 12 months after (a) its initial listing date, or (b) the last time it conducted a stock split or stock reverse.

Flexibility to comply with free float requirements

The requirements that must be met in order to maintain a free float on the IDX are as follows:

• at least 50 million shares and at least 7.5% of the fully paid-up capital of the listed company must be held by parties other than the controlling shareholders and substantial shareholders; and
• there must be at least 300 shareholders with securities accounts.

If a listed company takes any corporate action that would result in non-compliance with these requirements which is beyond the control of such listed company, it must submit a letter to the IDX setting out its plan to comply with the minimum free float requirements within two exchange days after it becomes aware that it no longer complies with the free float requirements. Further, if following a mandatory tender offer, a listed company no longer complies with the minimum free float requirements set out in the OJK Regulation on Acquisition of Public Companies, it has a period of two years to achieve the free float requirements again. 

New rules for determining exercise price for new share issuances

The New IDX Listing Regulation also sets out new rules for determining the exercise price of new share issuances:

• New shares under a non-pre-emptive issuance, but excluding shares issued for the employees or management of listed companies (“share ownership program”): The exercise price must be at least 90% of the average closing price on the regular market for the 25 consecutive exchange days before the date of the listing application.
  If the shares are currently suspended by the IDX, the average price will be the average of the highest daily trading price on the IDX in the 12-month period before the shares were last traded.
  In the case of a non-pre-emptive issuance for debt restructuring purposes, these provisions on the exercise price will no longer apply, to the extent it is agreed between the parties, is made on an arm’s length basis, does not violate prevailing regulations, and does not prejudice the rights of minority shareholders (i.e., shareholders other than the controlling shareholder or a substantial shareholder). A general provision also states that the exercise price cannot be lower than the minimum share price in the regular and cash markets.
• Newly issued shares under a share ownership program: The exercise price must be either (a) at least 90% of the average closing price on the regular market for 25 consecutive exchange days prior to the date of the listing application, or (b) at least the minimum share price for trading on the regular and cash markets. If the shares are currently suspended by the IDX, the average price will be the average highest daily trading price on the IDX in the 12-month period before the shares were last traded.
• Newly issued shares from a rights offering: the previous so-called “theoretical price” is no longer required, however the exercise price cannot be lower than the minimum share price for trading on the regular and cash markets.
• Newly issued shares from a stock split, bonus shares, and dividend shares: The “theoretical price” must be at least IDR100, calculated based on the average closing price on the regular market for 25 consecutive exchange days before the announcement of the general meeting of shareholders approving the stock split, bonus shares or dividend shares. If the shares are currently suspended by the IDX, then the average price will be the average highest daily trading price on the IDX in the 12-month period before the shares were last traded.
• Newly issued shares from warrant: The exercise price must be at least 90% of the average closing price on the regular market for 25 consecutive exchange days before the date of registration of the documents with the OJK. If the shares are currently suspended by the IDX, then the average price will be the average highest daily trading price on the IDX in the 12-month period before the shares were last traded.

No mandatory lock-up

The New IDX Listing Regulation removes the previously mandatory one-year lock-up period from the listing date for new shares issued under a non-pre-emptive issuance. Consequently, new shares with non-pre-emptive rights can be issued directly by a listed company to the investors. Previously, this was structured through a “top-up placement structure”, whereby the investors would only purchase existing shares from the controlling shareholder of a listed company. Proceeds from the sale of shares would then be used by the controlling shareholder to subscribe for newly issued shares without pre-emptive rights.

Change to listing application period

• Pre-emptive rights issue: The listing application should be made within two exchange days after the effective date of the registration statement approved by the OJK. Under the previous regulation, the application had to be submitted at least 10 exchange days before the distribution date.
• Non-pre-emptive issuance, dividend shares and bonus shares: The listing application should be made at least six exchange days before the listing date for newly issued shares. Under the previous regulation, the application had to be submitted at least 10 exchange days before the distribution date for newly issued shares without pre-emptive rights, and at least 10 exchange days before the announcement of the issuance of bonus shares or dividend shares.
• Warrant and share ownership program: The listing application should be made at least 10 exchange days before the listing date for newly issued warrant shares and at least 10 exchange days before commencement of the share ownership program. Under the previous regulation, the application had to be submitted at least 10 exchange days before the distribution date for newly issued warrant shares and share ownership programs.

No pre-conditions for effectiveness of pre-listed shares

The New IDX Listing Regulation clarifies that for the submission of reports such as a share allocation report, the report on conversion of shares will only be considered as a post-reporting obligation of the listed companies, and will no longer impact the effectiveness of the new share listing. 

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