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Print articleIndonesia - Buybacks of Shares by Public Companies
January, 2009 -
In response to the current global financial crisis, on 9 October 2008, the Chairman of the Capital Markets and Financial Institutions Supervisory Board (BAPEPAM-LK) issued a new regulation on buybacks of shares by public companies (Decree No. Kep-401/BL/2008 or Regulation No. XI.B.3). This new regulation provides fewer requirements than the previous regulation issued in 1998, Regulation No. XI.B.3 which remains valid. However, the latter is applicable only when the market is facing a potential crisis. BAPEPAM-LK has the right to declare this market condition which under Regulation No. XI.B.3 is defined as a condition where the collective index of share prices (IHSG) on the Indonesian Stock Exchange has decreased significantly within the previous 20 Stock Exchange days as a result of economic conditions being unfavorable to the normal movement of market prices of securities which is systemic in nature.
Whilst generally it provides similar requirements and procedures to the previous Regulation, Regulation No. XI.B.3 introduces several significant changes for undertaking a share buyback which include:
▫ approval from the General Meeting of Shareholders of the public company is not required,
▫ the maximum number of shares to be purchased is 20% of the public company’s paid up capital,
▫ the share buyback should take place within 3 months of notice being sent by the public company to BAPEPAM-LK and the Stock Exchange of its intention to undertake a share buybacks and
▫ there is no limit on the number of shares which can be purchased in one Stock Exchange day.
In normal market conditions, a share buyback of only a maximum of 10% of the public company’s paid up capital was permitted and it requires approval from the General Meeting of Shareholders.
Requirements for a share buyback are also provided in the Company Law (Articles 37 to 40 of Law No. 40 of 2007) which, unless provided otherwise in the capital market regulations, are applicable to both private and public companies.
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