Indonesia: BKPM issues new regulation concerning new foreign controllers in Indonesian public companies and treatment of subsidiaries of foreign owned Indonesian companies

Indonesia's Capital Investment Coordinating Board ("BKPM") has recently published a regulation (Regulation No. 5 of 2013 concerning Investment Guidelines and Procedures, "Regulation 5/2013"), which sets out new procedural rules on investment licensing, approval processes and other procedural matters relating to foreign investment in Indonesia. Whilst, in general, Regulation 5/2013 is on its face procedural in nature, it does introduce some significant changes which may potentially impact how foreign investors can structure their investments in Indonesia.

There are other significant procedural issues arising in relation to Regulation 5/2013, but we focus in this e-bulletin on two key changes introduced by Regulation 5/2013:

• A public company (known as a "Tbk" company) will be categorised as a foreign capital investment (or, using its Indonesian acronym, "PMA") company where all or at least one controlling shareholder of the public company is a foreign investor. A public company which is categorised as a PMA company will be required to apply for and obtain prior BKPM approval for any change of controlling shareholder – as a consequence, the Negative List may become applicable to such public companies in this situation.
• On conversion of a domestic investment company to PMA status (pursuant to foreign investor(s) becoming a shareholder in such company), its subsidiaries must also be converted to PMA status within one year. Where such subsidiary companies are engaged in business lines that are closed to foreign investment, all of the shares in the relevant subsidiaries must be transferred to individual Indonesian citizen(s) or domestic investment company(ies).

Please click here for further details on these two key aspects of Regulation 5/2013.

Herbert Smith Freehills in association with Hiswara Bunjamin & Tandjung.