Changes to reporting obligation for share ownership and encumbrance in public companies

The Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK) recently issued Regulation No. 4 of 2024 on reporting of share ownership and changes in share ownership and reporting of encumbrance of shares in public companies (Regulation 4), which will come into effect on 28 August 2024. Once in effect, Regulation 4 will replace OJK Regulation No. 11/POJK.04/2017 on reporting share ownership and any changes in share ownership in public companies (Regulation 11). Our March 2017 legal update on Regulation 11 can be found here.

Regulation 4 increases the range and details of securities transactions to be disclosed. It also reflects changes to the Indonesian Capital Markets Law introduced by Law No. 4 of 2023 on the Development and Strengthening of the Financial Services Sector (the Financial Omnibus Law). Our April 2023 legal update on the Financial Omnibus Law can be found here.

We set out below the key changes introduced by Regulation 4.

1. NEW SHARE OWNERSHIP REPORTING OBLIGATIONS 

(a)     A controller of a public company (ie, irrespective of the share ownership percentage of such party in the relevant public company) must now report its share ownership in that company, both direct and indirect.

(b)    Regulation 4 clarifies that an organised group may appoint one representative (within the organised group) to submit a share ownership report for their aggregated share ownership in a public company.

(c)    As with Regulation 11, any party that owns, directly or indirectly, at least 5 percent of shares with voting rights in a public company must report its share ownership. Regulation 4 introduces new guidelines for calculating share ownership, as follows:

1. Calculation of share ownership percentage. This refers to the number of shares owned, directly or indirectly, by the relevant party against the number of outstanding shares (saham yang beredar) of the public company. The term “outstanding shares” under Regulation 4 excludes any treasury shares held by the public company, which may result in a higher share ownership percentage for the relevant party.
2. Calculation of voting rights percentage. This is based on the total number of shares with voting rights in the public company which have been issued and fully paid up. As in point (i), any treasury shares held by the public company are excluded from the calculation of voting rights considering that voting rights cannot be exercised for treasury shares under the Indonesian company law. This also aligns with the share ownership reporting form attached to Regulation 4, which expressly requires the relevant parties to exclude treasury shares in calculating their voting rights percentage to be included in the report.
3. Calculation of voting rights for shares with multiple voting rights (MVS). Regulation 4 clarifies that the calculation of the voting rights of MVS should reflect the multiple voting rights attached to each MVS held by the relevant party, and not only be based on the number of shares held by the relevant party, against the number of outstanding shares. Hence, the calculation should be based on the total number of voting rights, instead of shares.

(d)  Regulation 4 also clarifies that share ownership obtained through inheritance must also be reported.

(e)  Under Regulation 4, the share ownership reporting obligation is triggered for any controller or other party directly or indirectly having at least 5 percent of shares with voting rights, upon any of the following events:

1. 1. holding 5 percent of shares with voting rights, directly or indirectly; or
   2. a controller obtaining the ability to control the public company, irrespective of its share ownership percentage; or
   3. a party’s ownership of shares with voting rights falling below 5 percent; or
   4. a change in the whole number percentage of direct or indirect share ownership upon rounding down the decimal point. For example, a change from 5.99% (to be rounded down to 5%) to 6.1% (to be rounded down to 6%) would trigger the share ownership reporting obligation, while a change from 5.2% (to be rounded down to 5%) to 5.99% (to be rounded down to 5%) would not trigger the share ownership reporting obligation.

As with Regulation 11, Regulation 4 continues to apply the share ownership reporting obligation to parties indirectly owning shares with voting rights in a public company. An indirect shareholder includes ultimate beneficial ownership and/or any intermediary ownership up the chain to the ultimate beneficial owner(s) (pemilik manfaat sebenarnya). Despite this, the practice of reporting indirect shareholdings adopted by market players varies.

(f)  Regulation 4 exempts from reporting certain changes to share ownership caused by certain corporate actions undertaken by the public company, namely shareholding changes due to:

1. 1. a capital increase by the public company through preemptive offering (rights issue) or non-preemptive offering (private placement), irrespective of the involvement of the relevant shareholder(s) or party(ies) in such capital increase; and
   2. other corporate action undertaken by the relevant public company (eg, share buyback by the public company) provided that the relevant shareholder is not involved in such corporate action.

(g)  Regulation 4 requires a share ownership report to be submitted immediately and within five working days (which will be shortened to be three working days upon the establishment of OJK’s electronic reporting system, as discussed below) following the relevant occurrence of ownership of shares with voting rights (or voting rights over shares) or the relevant changes to such ownership, as the case maybe. This five-working-day deadline is also applicable for a share ownership report that will be submitted by a proxy.

(h)  Regulation 4 requires certain additional information to be included in the prescribed share ownership reporting form, including:

1. 1. percentage of voting rights (see discussion in point 1(c) above);
   2. type of transaction (eg, sale, purchase, exercise of equity-type securities, gift, inheritance, enforcement of security interest over shares);
   3. confirmation whether the transaction constitutes a repurchase agreement;
   4. relevant share classification (ie, ordinary shares or MVS);
   5. information whether the reporting party is a controller and whether such controller will retain its control over the public company;
   6. information that the relevant shareholder has granted a power of attorney to a proxy to submit the report, if relevant; and
   7. details of members of any relevant organised group of shareholders (concerned parties).

2. NEW REPORTING OBLIGATION ON ENCUMBRANCE OF SHARES IN PUBLIC COMPANIES 

(a) Regulation 4 requires any shareholder that encumbers (eg, by way of pledge) without causing the change of ownership of at least 5 percent of shares with voting rights in a public company, whether in a single action or a series of steps, to report such encumbrance to OJK using the form prescribed in Regulation 4.

(b)  Under Regulation 4, the obligation to report the encumbrance of shares is triggered upon any of the following events:

1. 1. in the context of “multiple actions”, once the total number of shares encumbered reaches 5 percent of the total shares with voting rights in the public company which have been issued and fully paid up; or
   2. if there is a change to the whole percentage unit of the encumbered shares with voting rights upon rounding down the decimal point. See point 1(e)(iv) above on how to determine when the change is triggered.

(c)  Regulation 4 generally requires a shareholding encumbrance report to be submitted immediately and within five working days (which will be shortened to be three working days upon the establishment of OJK’s electronic reporting system, as discussed below) from the date of signing the security agreement which causes the total number of shares encumbered to reach 5 percent of the total shares with voting rights.

In contrast, the elucidation to Regulation 4 provides that the “date of agreement” to be included in the encumbrance report refers to the date on which the encumbrance action occurs (terjadi) or becomes effective (berlaku). The timing for reporting should be assessed carefully in each case.

(d) Regulation 4 includes a prescribed form for the share encumbrance report which contains various information, including:

1. 1. the number of shares that are being encumbered and the shareholding percentage of the shares that are being encumbered;
   2. the amount of indebtedness being secured by the share security;
   3. the type of transaction or event causing the change in the number of shares that are encumbered, if relevant;
   4. the date of agreement (ie, the date on which the encumbrance activities occur or become effective) and the period of the agreement; and
   5. any affiliate relationship between the parties to the encumbrance activities.

3. ELECTRONIC REPORTING SYSTEM 

Regulation 4 mandates OJK to establish an electronic reporting system, and once this new system has been established, share ownership reports and share encumbrance reports must be submitted through it. Once the new system in place, the deadline for submission of share ownership reports and share encumbrance reports will be shortened from five to three working days. 

CONCLUSION

With the issuance of Regulation 4, OJK is clearly signalling its intent to make share ownership disclosure requirements more stringent and to focus on voting rights under the relevant shares, not just the percentage number of shares held. The exemption from the share ownership reporting obligation under certain circumstances introduced by Regulation 4 is a welcome clarification to the uncertain application that shareholders often face in practice. 

The new requirement to report share encumbrance by shareholders in public companies also reflects OJK’s wish to supervise potential change of control due to enforcement of encumbrance of shares in public companies.