Capital Market and Financial Institutions Supervisory Agency - Buy Back of Shares

The globe is in the midst of interesting and tough financial times. The financial crisis might have begun with the unfolding of some of the world’s biggest financial institutions based in the US but the impacts of this meltdown will undoubtedly be felt around the world. The International Monetary Fund has already declared some economies to be in recession and other economies as being under threat of recession. These might be interesting times but they are also dangerous times in the financial sense.

The Indonesian Government has been seeking to convince Indonesians and investors in Indonesia that the fundamentals of the Indonesian economy are sound and that the impacts of the global financial crises are likely to be minimal. Nevertheless, the government has sort to minimize any negative impacts even further by facilitating the ease in which issuers can buy back shares without falling into breach of provisions relating to market manipulation and insider trading, among others.

The provisions concerning the buy-back of shares of issuers and public companies are contained in Bapepam-LK Rule No. XI.B.3 and is attached to Head of Bapepam-LK Regulation No. KEP-401/BL/2008. The Regulation was issued on 9 October 2008 and came into immediate force.

There are 16 points contained in the Rule. In essence, the issuers and public companies that are inclined to do so can buy back their shares without breaching the provisions of Article 91, 92, 95, and 96 of the Capital Market Law (Law No. 8 of 1995) whilst this Rule remains in force.

The key feature of the Rule is that the issuer or public company can conduct a buy-back of its shares without having to undertake a General Meeting of Shareholders (GMS) to gain shareholder approval for the buy-back. However, the buy-back is limited to 20% of the paid-up capital of the issuer or public company. Any buy-back will require the issuer or public company to notify both Bapepam-LK and the Stock Exchange of their plans and then the buy-back must be completed within three months of that notification.

A buy-back of shares can then become part of an Employee Stock Option Plan or an Employee Stock Purchase Plan. However, this must be done with the approval of the GMS and in accordance with Bapepam-LK Rule No. IX.E.1 as it relates to conflict of interest transactions.

Any share buy-back can be sold outside of the exchange at a fair market price. Nevertheless, that fair market price cannot be less than the price paid in the buy-back of those shares.

It is expected that this Regulation and Rule will allow for greater stability in the market.