Member Article

The Head of the Capital Markets and Financial Institutions Supervisory Agency (“Bapepam-LK”) recently issued a new decision, No. KEP-105/BL/2010, with the new Rule No. XI.B.2 attached. This decision sets out the rules governing share buy-backs in issuers and public companies to align them with the share buy-back requirements under Law No. 40 of 2007 regarding Limited Liability Companies (the “Company Law”).

The share buy-back must at all times comply with the requirements under the Company Law. To implement a share buy-back, an issuer or a public company requires approval from the General Meeting of Shareholders (GMS) in accordance with Bapepam-LK Rule No. IX.J.1. Certain information in connection with the share buy-back must be included in the announcement of the relevant GMS, such as the estimate on the repurchase timeframe and price as well as the number of shares to be repurchased, reasoning and consideration to implement a share buy-back, and the method for the buy-back.

Rule No. XI.B.2 requires the implementation of the share buy-back (which may be conducted inside or outside the stock exchange) to be completed within 18 months of the date of the approval from the GMS. If the share buy-back is conducted inside the stock exchange (on market), the following requirements must be satisfied: (a) the buy-back is to be completed by one broker dealer that is a stock exchange member and (b) the offering price for the buy-back must be either lower than or the same with previous transaction price. If the buy-back is conducted off market, certain share pricing requirements are to be observed, for example, the maximum purchase price for the shares listed and traded in the stock exchange is the average of the daily closing trading price in the stock exchange within the last 90 days before the buy-back date, while the maximum purchase price for the shares not listed in the stock exchange is the fair market value as determined by an independent appraiser.

A buy-back of shares listed on the stock exchange is prohibited if it would cause the number of the shares to decrease to a level which would reduce share liquidity in the stock exchange. The issuer or public company conducting the share buy-back must report the results of the buy-back to Bapepam-LK on a semesterly basis, ie in June and December using a specific form attached to Rule No. XI.B.2.

Rule No. IX.B.2 permits a transfer of repurchased shares in certain circumstances, such as by way of an on or off market sale, but only after the lapse of 30 days following the completion of the buy-back and subject to certain pricing requirements. If the issuer or public company still holds any repurchased shares within three years of the completion of the buy-back, the issuer or the public company must transfer the repurchased shares within no later than two years, failing which, an extension of another one year is permitted. A disclosure of information is required to be made to the public and Bapepam-LK before the implementation of a transfer of the repurchased shares.

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