In October 2020, the Indonesian Competition Commission (commonly known as the KPPU) issued new Guidelines on the Evaluation of Mergers, Consolidations and Acquisitions (the Guidelines). The Guidelines provide much needed clarity on the interpretation of KPPU Regulation No. 3 of 2019 (the 2019 Regulation), which sets out the categories of transactions subject to notification under Indonesia’s post-closing merger control regime.
Although not directly connected, the issue of the Guidelines also followed shortly after the passage of Indonesia’s Omnibus Law, which amended a raft of investment-related laws in Indonesia. This includes the Indonesian Antimonopoly Law, which has been amended to increase the KPPU’s fining powers, and to streamline appeals of KPPU decisions.
As reported on previously, the 2019 Regulation was enacted in October last year, replacing the existing merger control regulation. While the 2019 Regulation improved on the existing regulation in some respects, it left open a number of questions, notably in relation to the scope of asset acquisitions and foreign-to-foreign transactions subject to notification. The Guidelines go some way towards resolving these questions.
The Guidelines will potentially reduce the circumstances in which companies need to make merger filings.
Asset-based jurisdictional thresholds
An Indonesian merger control filing can be triggered if one of two alternative jurisdictional thresholds is met: a turnover-based threshold of IDR 5 trillion (USD 340 million), or an asset-based threshold of IDR 2.5 trillion (USD 170 million). While the turnover-based threshold is explicitly limited to turnover derived in Indonesia, the 2019 Regulation provided for the first time that the relevant asset value for the purposes of the asset-based threshold “shall be the asset value reflected in the financial statements”. This suggests the possibility that the threshold can be met by non-Indonesian asset value if financial statements are not limited to Indonesia.
The Guidelines confirm that the relevant asset value is the consolidated asset value of the Ultimate Holding Entity of a party and its direct or indirect subsidiaries (UHE). Given that the UHE of an Indonesian entity can be located outside Indonesia, the relevant asset value is therefore not limited to assets located within the territory of Indonesia. This would mean that any company that has total global assets of more than IDR 2.5 trillion would appear to satisfy the assets threshold test, even if its activities in Indonesia are limited. (However, as explained below, in this case it may be possible to avoid a filing by relying on the “foreign-to-foreign” exemption.)
On the other hand, the Guidelines provide that where a transaction is carried out by a joint venture company, the UHE will be the joint venture company itself. Accordingly, the turnover and asset threshold calculation will be limited to the turnover and assets of the joint venture company and its subsidiaries, and will not include the turnover and assets of the joint venture parents. The Guidelines do not, however, elaborate on whether “joint venture” for this purpose is limited to 50:50 joint ventures. From our discussion with the KPPU, a joint venture company can be considered as a UHE if the joint venture company is jointly controlled by the joint venture parties. The existing regulations define “control” in a share acquisition as:
- owning more than 50% of the shares or voting rights in the relevant business entity; or
- owning 50% or less of the shares or voting rights in the relevant business entity, but able to influence and determine the management policies of the relevant company and/or influence and determine the management of the company.
In practice, having the ability to control or direct strategic management decisions of the target (eg, majority board appointments and/or veto rights in relation to shareholder or board meetings and the annual business plan/budget) may be considered by the KPPU as constituting “control”. This will need to be assessed on a case-by-case basis by considering rights of parties under the relevant joint venture agreement.
Notifiability of asset acquisitions
Until the enactment of the 2019 Regulation, only transactions involving acquisitions of shares were subject to notification. Acquisitions of assets were excluded. The 2019 Regulation provided for the first time that acquisitions of both tangible and intangible assets may also be subject to notification. However, the 2019 Regulation was silent on the types of assets that could trigger a filing. The Guidelines confirm that tangible assets include all assets that can be seen and counted, whether moveable (eg, heavy machinery or vehicles) or immovable (eg, buildings, land or factories). Intangible assets include trademarks, copyrights, patents, licences, sale of data, consumer data, digital data and big data.
The Guidelines exclude the following types of asset acquisitions:
- acquisitions of assets with a total value of less than IDR 250 billion (USD 17 million) for non-bank purchasers;
- acquisitions of assets with a total value of less than IDR 2.5 trillion (USD 170 million) for bank purchasers;
- acquisitions of assets in the ordinary course of business (ie (i) asset transfers in the form of finished goods from one business player to another in order to be resold to end consumers by a retail business; and (ii) asset transfers of supplies that will be used within three months during the production process);
- acquisitions of real property where: (i) the asset is in the form of a building that will be used by the acquirer as its office, or (ii) the asset will be used for public/social purposes; and
- acquisitions of assets that do not relate to the business of the purchaser.
Notifiability of other categories of acquisition
In addition to acquisitions of assets, the Guidelines make clear that acquisitions of instruments with similar characteristics to shares are also notifiable where the relevant thresholds are met. The Guidelines provide that such instruments are those that allow an instrument-holder to “control” and receive benefits from the target company, such that there is a change of control in the target company. This appears to capture acquisitions of instruments such as convertible bonds and exchangeable bonds, if such instruments attach voting rights allowing the instrument-holder to “control” the target company as if it were a shareholder.
Additionally, the Guidelines provide that acquisitions of “participating interests” (ie in the sense normally used in oil and gas exploration and production activities) may be subject to notification, but do not specify whether a change of control is required.
On the other hand, the Guidelines confirm that the acquisition of shares without voting rights will not be deemed as creating a change of control in the target company, and therefore will not be subject to notification.
The 2019 Regulation further expanded the scope of notifiable transactions by providing that transactions meeting the relevant jurisdictional thresholds and taking place outside Indonesia must be notified to KPPU if all the parties or one of the parties to the transaction carries out business activities or has sales in Indonesia (rather than two or more parties, as under the previous regulation).
The Guidelines appear to reinstate the position before the 2019 Regulation by adding a new criterion that foreign-to-foreign transactions must have an “impact on the Indonesian domestic market”. While the Guidelines do not provide any further clarification on what could be considered an “impact on the Indonesian domestic market”, it appears that an offshore transaction would not be regarded as having an impact if only one party to the transaction undertakes business in Indonesia.
Simplified filing procedure
While some transactions will be notifiable notwithstanding this change to limit the notifications for foreign-to-foreign transactions, the Guidelines have introduced a more simplified notification process for transactions without significant impact on the market (as determined by certain criteria). This is similar to the approach taken in jurisdictions such as the EU and China.
The examination process for a simplified procedure will be shortened from 90 business days to only 14 business days. However, given the long delays typically experienced with Indonesian filings, it remains to be seen whether this shorter timeline will be achievable in practice.
By Sakurayuki, Randitya Adiguna and Joel Rheuben