Capital Increases and Rights Issues

With a view to making the capital market more competitive as an alternative source of funding for issuers and public companies while simultaneously driving an increase on public ownership of companies, the Head of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) has issued Decision No. KEP-429/BL/2009. This decision repeals and replaces the earlier Decision No. Kep-44/PM/1998 on Capital Increases Without A Rights Issue. The current decision includes Rule No. IX.D.4 as an attachment, and has been in force since 9 December 2009.

The decision / rule in effect allows for capital increases to occur without the need for a rights issue to take place. However, there are explicit provisions relating to how and when this capital increase can occur. The rule states unequivocally that the Articles of Association must state that a capital increase can occur without a rights issue pursuant to Rule No. IX.D.1 if that capital increases occurs within two years and does not exceed 10% of the paid-up capital.

Furthermore, the rule provides for capital increases to rectify the financial position where a bank has received bailout funds from Bank Indonesia or any other government agency that total more than 100% of the paid-up capital or where conditions exist that result in the restructuring of the bank by an authorized government agency.

Finally, the rule sets out that no later than five days prior to the capital increase without a rights issue that the company is obligated to inform Bapepam-LK of their intent to increase capital. The company is also obligated to announce publicly the time frame for implementation of the capital increase.