After months of delay and trepid anticipation, the revised ‘Negative Investment List’ regulating closed and conditionally-open investment sectors was released as Presidential Regulation No. 36 of 2010 (“Regulation”). Apart from repealing and substantially modifying its predecessor - Presidential Regulation No. 77 of 2007 as amended by Presidential Regulation No. 111 of 2007 - it also introduces new provisions relating to (1) exemptions to the Negative Investment List, (2) mergers and acquisitions, and (3) rights issues.
Attachment I of the Regulation specifies which investment sectors are closed from investment, while Attachment II specifies which investment sectors are open to investment, and under what types of conditions.
Although the Negative Investment List sets the parameters for foreign direct investment, Article 4 provides that sectors in both Attachments I and II are still open to portfolio investment through the domestic capital market.
Regardless of the sector, foreign investment that has already secured approval will remain outside the scope of the new Negative Investment List. For example, whereas the previous regulation permitted 95% foreign share ownership in the food and crop cultivation sector, the current Negative Investment List allows only 49% foreign share ownership - but firms in that sector with greater levels of foreign control will not need to divest or otherwise modify their share structure to suit the regulatory modification.
Although some strategic sectors, such as telecommunication towers and education, have remained closed or only conditionally-open to foreign investment, other sectors have been significantly opened. As one example, the healthcare industry was liberated from restrictions: 67% foreign share ownership is permitted across the country, as opposed to a localized 65% allowance restricted to Medan and Surabaya areas.
The Regulation also introduces a technical provision for mergers and acquisitions (M&A), to the effect that during M&A, the share structure of a company must be organized to prevent foreign share control exceeding what is permitted by the Negative Investment List in that particular sector, which will be stated in the Foreign Capital Investment Approval documents.
Moreover, the Regulation provides a provision relating to the rights issue in its Article 6. The Article explains that if a foreign investor’s share ownership exceeds what is permitted by the Negative Investment List and Foreign Capital Investment Approval document due to a business expansion by way of a rights issue, the Regulation allows 2 years for one of three options:
1)
Excess shares are sold to local shareholders of the same company.
2)
Excess shares are sold on the domestic stock market by the company in a public offering.
3)
The company purchases the shares from its excess-control foreign shareholders, treating the shares as ‘Treasury Stocks’.
The Regulation repeals and replaces Presidential Regulation No. 77 of 2007 as amended by Presidential Regulation No. 111 of 2007, and has been in force since 25 May 2010.
After months of delay and trepid anticipation, the revised ‘Negative Investment List’ regulating closed and conditionally-open investment sectors was released as Presidential Regulation No. 36 of 2010 (“Regulation”). Apart from repealing and substantially modifying its predecessor - Presidential Regulation No. 77 of 2007 as amended by Presidential Regulation No. 111 of 2007 - it also introduces new provisions relating to (1) exemptions to the Negative Investment List, (2) mergers and acquisitions, and (3) rights issues.
Attachment I of the Regulation specifies which investment sectors are closed from investment, while Attachment II specifies which investment sectors are open to investment, and under what types of conditions.
Although the Negative Investment List sets the parameters for foreign direct investment, Article 4 provides that sectors in both Attachments I and II are still open to portfolio investment through the domestic capital market.
Regardless of the sector, foreign investment that has already secured approval will remain outside the scope of the new Negative Investment List. For example, whereas the previous regulation permitted 95% foreign share ownership in the food and crop cultivation sector, the current Negative Investment List allows only 49% foreign share ownership - but firms in that sector with greater levels of foreign control will not need to divest or otherwise modify their share structure to suit the regulatory modification.
Although some strategic sectors, such as telecommunication towers and education, have remained closed or only conditionally-open to foreign investment, other sectors have been significantly opened. As one example, the healthcare industry was liberated from restrictions: 67% foreign share ownership is permitted across the country, as opposed to a localized 65% allowance restricted to Medan and Surabaya areas.
The Regulation also introduces a technical provision for mergers and acquisitions (M&A), to the effect that during M&A, the share structure of a company must be organized to prevent foreign share control exceeding what is permitted by the Negative Investment List in that particular sector, which will be stated in the Foreign Capital Investment Approval documents.
Moreover, the Regulation provides a provision relating to the rights issue in its Article 6. The Article explains that if a foreign investor’s share ownership exceeds what is permitted by the Negative Investment List and Foreign Capital Investment Approval document due to a business expansion by way of a rights issue, the Regulation allows 2 years for one of three options:
1)
Excess shares are sold to local shareholders of the same company.
2)
Excess shares are sold on the domestic stock market by the company in a public offering.
3)
The company purchases the shares from its excess-control foreign shareholders, treating the shares as ‘Treasury Stocks’.
The Regulation repeals and replaces Presidential Regulation No. 77 of 2007 as amended by Presidential Regulation No. 111 of 2007, and has been in force since 25 May 2010.
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