Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

Merger control in Indonesia, enforced by the Indonesian Competition Commission (KPPU), is governed by:

 

The following KPPU regulations are also relevant:

 

Scope of legislation

What kinds of mergers are caught?

Mergers, consolidations and acquisitions are caught.

A merger is the legal act of one or more undertakings merging with another undertaking, resulting in assets and liabilities being transferred by operation of law to one undertaking and the legal status of the other to cease by operation of law.

A consolidation is the legal act of two or more undertakings consolidating by establishing a new undertaking that obtains the assets and liabilities of the consolidating undertaking by operation of law, with the legal status of the consolidating undertakings ceasing by operation of law.

An acquisition is the legal act of an undertaking acquiring shares or assets of another undertaking, resulting in a change of control of the undertaking or the assets of the undertaking. A change of control could also involve a change from sole to joint control or vice versa.

The concepts of mergers, consolidations and acquisitions should be interpreted broadly to mean any type of concentration of control over undertakings that were previously independent into one undertaking or group of undertakings, or a change of control from one undertaking to another undertaking that results in a concentration of control or market concentration.

A share acquisition may be carried out through a direct purchase from the existing shareholder or the capital market, or through subscription of new shares by capital injection. The definition of shares goes beyond the conventional understanding of the term by encompassing legal instruments that are conceptually similar to shares, which enable their owners to control and receive benefit from such ownership (eg, a participating interest, which is commonly acquired in the oil and gas industry). An acquisition of shares with no or limited voting rights (preferred stock) is exempt from notification as it does not result in a change of control.

A transfer of assets (tangible or intangible) is tantamount to an acquisition of shares and, accordingly, should be notified to the KPPU if there is:

  • a transfer of their management control or physical control; or
  • an increase in the ability of the acquirer to control a relevant market.

 

The following asset transfers are exempt:

  1. a non-bank asset transfer transaction valued at less than 250 billion rupiahs;
  2. a bank asset transfer transaction valued at less than 2.5 trillion rupiahs;
  3. a transfer of assets that is carried out in the ordinary course of business (this depends on the business profile of the acquiring party and the purpose of the acquisition) – transactions in the ordinary course of business are:
    • transfers of assets that are finished goods from one undertaking to another for resale to consumers by an undertaking that is active in the retail sector (ie, the sale of consumer goods by retailers); and
    • transfers of assets that are supplies to be used within three months in the production process (ie, the purchase by an undertaking of raw materials and basic components from various sources for production).

 

The assets described under point (3) above have no relationship with the business activities of the undertaking acquiring the assets.

The transferred asset value in points (1) and (2) above is as cited in the latest financial statements, or as calculated at the sale, purchase or other legal asset transfer. The highest of these should be the basis for calculation of the threshold. If the transferred assets are privately owned, the asset value would be based on the value as referred to in the seller’s tax filing.

An undertaking is any individual or business legal or non-legal entity that is established and domiciled, or is carrying out activities within, Indonesia either individually or jointly by virtue of an agreement, while carrying out various business activities in the economic field.

If the transaction is carried out between affiliates, the transaction is exempt. A company is an affiliate of another if:

  • it either directly or indirectly controls, or is controlled by, that company;
  • both it and the other company, directly or indirectly, are controlled by the same parent company; or
  • there is a main principal shareholder relationship with the counterparty.

 

The principal shareholder should be a controlling shareholder. ‘Affiliation’ means a relationship of control.

What types of joint ventures are caught?

Joint ventures are, in principle, caught by Indonesian merger control legislation unless they are greenfield joint ventures. To avoid doubt, mergers, consolidations or acquisitions carried out by a joint venture after its establishment are still caught, provided that other criteria are met.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

A change of control occurs if the controlling undertaking changes from an undertaking:

  • carrying out a merger (merging entity) into one that accepts the merger (surviving undertaking);
  • carrying out a consolidation into one that is the result of the consolidation;
  • whose shares are acquired into one that carries out the acquisition of shares; or
  • whose assets are acquired into one that carries out the acquisition of assets.

 

In the event of an acquisition of shares, control exists if the acquiring party holds:

  • more than 50 per cent of the shares or voting rights; or
  • 50 per cent (or less) of the shares or voting rights but has the ability to influence or direct the company’s policy or management, or both.

 

Whether the acquiring party has the ability to influence or direct the undertaking’s policy or management is determined case by case. Case law shows that an acquiring party may, for instance, have control because it has certain veto rights and a right to nominate the majority of directors, including the president director, or if it has more expertise than the other shareholder in the business in which the target is engaged.

In case of a share acquisition involving a foreign target, the matter of control is determined based on the law applicable to the target. However, we see that in determining whether a change of control has occurred, the KPPU will also consider whether the acquiring party (i) will consolidate the financial statements of the target, (ii) has the right to appoint the majority of directors, in particular the finance director, and (iii) is registered as the controlling shareholder in the trade register (or local equivalent). 

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

The jurisdictional thresholds for notification are:

  • the combined value of assets in Indonesia exceeds 2.5 trillion rupiahs or, if all undertakings involved in the transaction are active in the banking sector, 20 trillion rupiahs; or
  • combined turnover in Indonesia exceeds 5 trillion rupiahs.

 

Of relevance to the calculation are assets or sales in Indonesia of the acquirer and all undertakings (ie, including the target) that follow the merger, consolidation or acquisition directly or indirectly control, or are controlled by, the undertaking that carries out a merger, consolidation or acquisition of shares or assets. This includes the ultimate beneficial owner, which is the highest controller of a group of undertakings that is not controlled by any other undertaking.

The jurisdictional thresholds are also met if only one party involved in the transaction meets the threshold.

The definition of ‘target’ includes the target and its subsidiaries and the seller is not taken into account; however, if the transaction results in a change from single to joint control, the assets or turnover in Indonesia, or both, of the existing shareholder and its affiliates are also relevant (unless the transaction is carried out by a joint venture within the meaning discussed below).

The asset value and turnover are calculated based on the consolidated audited financial report of the ultimate beneficial owner – or, if no consolidated financial report is available, the financial reports of the ultimate beneficial owner and each of its subsidiaries – in all cases that occurred during the year before the one in which the transaction takes place. Turnover includes sales of products produced domestically and imported products. Exported products should be excluded from the calculation.

If the asset or sales value of a party involved in the merger, consolidation or acquisition has decreased by 30 per cent or more in an accounting year as compared with the year before, the value is calculated on the basis of the average of the past three years or, if the decrease occurred in under three years, the average of the past two years.

If the transaction is carried out by a joint venture, the ultimate controlling entity for the calculation of the asset and sales value is the joint venture itself, so the calculation should be based on the financial statements of the joint venture and its subsidiaries (if any), as well as of the target and its subsidiaries (if any). The asset and sales value of other affiliates of the joint venture (eg, controlling entities and sister companies) may be ignored for the calculation of the threshold.

According to the KPPU, the joint venture should form a business unit that is independent from each of the shareholders that have formed the joint venture. The joint venture should have its own financial statements, separated from each of the undertakings that have formed it.

The KPPU does not seem to require that the shareholding of parent companies in the joint venture is equal (ie, 50/50) or that they have exactly the same rights over the governance of the joint venture, but rather that both parent companies are given rights over strategic decisions (including veto rights) that would confer on them joint control over the joint venture.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

A post-merger filing is mandatory if all criteria are met. Parties involved in the transaction may carry out a voluntary pre-merger filing; however, even if parties carry out a voluntary pre-merger filing, the post-merger filing will still be mandatory. No exceptions exist other than when the transaction is carried out between affiliates, in which case the transaction is exempt. A company is an affiliate of another if:

  • it either directly or indirectly controls, or is controlled by, that company;
  • both it and the other company, directly or indirectly, are controlled by the same parent company; or
  • there is a main principal shareholder relationship with the counterparty.

 

The principal shareholder should be a controlling shareholder.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

Foreign-to-foreign mergers may have to be notified if they have a dual nexus in the Indonesian market. A transaction has a nexus if at least (i) the acquiring party or one of its affiliates (eg its ultimate parent entity, a sister company or subsidiary), and (ii) the target or one of its subsidiaries carry out business activities in or sales to Indonesia.

The term ‘business activities in Indonesia’ can be broadly interpreted and includes:

  • direct and indirect (portfolio) equity investment in Indonesian limited liability companies;
  • investment in financial instruments other than shares, such as loans or assets;
  • contractual rights;
  • participation in a unit or trust, no matter whether directly or indirectly; or
  • opening a representative office.

 

Whether a company has sales in Indonesia is not always easy to determine. Parallel sales could also trigger a notification requirement.

Are there also rules on foreign investment, special sectors or other relevant approvals?

Indonesia has a general foreign investment regime, which is set out in Law No. 25 of 2007 on Investment, as amended by the Competition Law, and implementing legislation, including Presidential Regulation No. 10 of 2021 on Investment Sectors, as amended by Presidential Regulation No. 49 of 2021.

Under Law No. 25 of 2007, as amended, all business fields are open to foreign investment unless declared otherwise. Foreign investment must be carried out through a foreign investment company in the form of a limited liability company under Indonesian law (PT PMA) and domiciled within the territory of Indonesia, unless provided otherwise by law. Foreign investors who make investments through a PT PMA should:

  • subscribe to shares at the time the PT PMA is established;
  • purchase shares; or
  • invest through another method in accordance with applicable laws and regulations.

 

Presidential Regulation No. 10 of 2021, as amended, indicates:

  • 37 business fields are subject to specific requirements, which may be classified as:
    • open to foreign direct investment (FDI) but subject to a maximum foreign shareholding limit;
    • open to FDI but subject to special approval from the relevant ministry;
    • 100 per cent reserved for domestic investors; and
    • certain business fields that are limited, supervised or regulated by a separate regulation on the supervision and control of alcohol beverages;
  • six business fields that are completely prohibited from FDI under the Competition Law (narcotics, gambling or casinos, harvesting of fish listed in the Convention on International Trade in Endangered Species of Wild Fauna and Flora, utilisation or harvesting of coral, chemical weapons and chemicals that may damage the ozone layer);
  • 60 business fields that are reserved for cooperatives and small and medium-sized enterprises; and
  • 46 business fields that are open to FDI if in partnership with cooperatives and small and medium-sized enterprises.

 

Several sectoral laws (eg, in banking, non-banking financial services (venture capital, multi-finance and securities companies), insurance, mining, oil and gas, and shipping) introduce foreign investment rules and restrictions.