Mechanism that Needs to be Considered in the IPO Procedure in the Regulation

From: A.M Oktarina Counsellors at Law

Contributors: Pramudya Yudhatama, S.H., Khaifa Muna Noer Uh’Dina, S.H., Raysha Alfira, S.H., Putri Shaquila, S.H.

Reviewer: Noverizky Tri Putra Pasaribu, S.H., L.L.M (Adv).

1. Background

Nowadays, there are many companies in practice that want to list their names for Initial Public Offering (“IPO“), that is one example such as, launching from the news “Multi Garam Utama (FOLK) Mau IPO, Incar Dana Publik Rp 60 M” (source: https://www.cnbcindonesia.com/market/20230720072955-17-455703/multi-garam utama–folk–mau-ipo-incar-dana-publik-rp-60-m), and also “IPO, Ingria Pratama Bidik Dana sebesar Rp 353, 9 Miliar” (source: https://economy.okezone.com/read/2023/07/20/278/2849194/ipo-ingria-pratama-bidik-dana-rp353-9-miliar), who will conduct their IPO as we know, the IPO system itself provides many benefits for companies if they conduct an IPO, but keep in mind the mechanism and procedure in registering a company to conduct an IPO is not that simple.  Of course, there are still many companies that want to IPO, but have not been able to meet the requirements and/ or mechanisms of their own IPO that are also regulated in various related regulations. So what are the mechanisms and conditions for companies that want to conduct an IPO?

1. Legal Basis

1. Law Number 8 of 1995 concerning Capital Market (“Law 8/1995“).
2. Law Number 40 of 2007 concerning Limited Liability Companies (“Law 40/2007“).
3. Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector (“Law 4/2023“).
4. Financial Services Authority Regulation Number 76/POJK.04/2017 concerning Public Offering by Shareholders (“POJK 76/POJK.04/2017“).
5. Regulation of the Financial Services Authority of the Republic of Indonesia Number 41/POJK.04/2020 concerning the Implementation of Electronic Public Offerings of Equity, Debt Securities, and/or Sukuk (“POJK 41/POJK.04/2020“).

Although we are familiar with hearing IPO, we need to know based on the IPO (Go Public) Guide from the official website of the Indonesia Stock Exchange (“IDX”), namely IPO means a solution from the capital market for companies to obtain funding through the offering of part of the company’s shares to the public or commonly called going public. It may also be interpreted as a public offering that means securities offering activities carried out by issuers to sell securities to the public based on the procedures regulated in the Law on the Capital Market and it is implementing regulations, that we may find listed in Article 1 paragraph (1) POJK 41/POJK.04/2020. This process also makes the company transform from a closed company to a public company that will be managed better, more professionally and transparently.

In terms of practice, the IPO mechanism involves several other agencies besides the IDX, and has its own interrelationships. The implementation of these regulations is also more or less found in institutions such as the Financial Services Authority (“OJK”) and the Capital Market Supervisory Agency (“Bapepam“).

Then in carrying out the IPO process there are several requirements and procedurals that must be met first. In the provisions of POJK 76/POJK.04/2017 Article 1 paragraph 3, that there are provisions for the definition of the number of shares in becoming a public company, that reads:

“A Public Company is a company whose shares have been owned by at least 300 (three hundred) shareholders and have a paid-up capital of at least IDR 3,000,000,000.00 (three billion rupiah) or a number of shareholders and paid-up capital determined by Government Regulation“.

And it has also been regulated in Law 40/2007 Article 1 number 8:

“A Public Company is a Company that meets the criteria for the number of shareholders and paid-up capital in accordance with the provisions of laws and regulations in the field of capital market“.

So what is the mechanism? in terms of procedures for submitting IPO registration statements, it has been regulated as follows:

1. “In conducting a public offering, it is mandatory to submit a registration statement to the OJK by submitting documents, namely a cover letter for the registration statement and prospectus.
2. Shareholders or public companies are responsible for the completeness of the registration statement documents registered with OJK.
3. Shareholders or public companies can make an initial offer since the registration statement is submitted to OJK.
4. In making an initial offer, the registration statement letter must contain all information in the prospectus submitted to OJK.
5. Announce the prospectus of a public offering of shares owned by issuers or public companies since submitting a registration statement to OJK with proof of announcement that must be submitted to OJK no later than the end of the 2nd (second) working day after the announcement.
6. If there is improvement or additional information in the prospectus, the issuer or public company must announce no later than 2 (two) working days from the effective registration statement to OJK.
7. A public offering can only be made if the registration statement is effective on the basis of the lapse of 45 days from the date the registration statement is received by OJK and from the date of the last amendment submitted by the issuer or public company or requested by OJK.
8. Upon the effectiveness of the registration statement and before the commencement of the public offering period, public companies are obliged to provide a prospectus.
9. The public offering period is carried out within a period of no less than 3 working days.
10. Submit a report on the results of a public offering by issuers or public companies to OJK no later than 10 (ten) working days.
11. If the number of orders during the stock offering period exceeds the number of shares offered, shareholders who make a Public Offering in allotment must give priority to share orders made by shareholders of the issuer or existing public company.
12. If there are remaining shares, the issuer or public company must make proportional allotment to bookers who are not shareholders of the issuer or public company.
13. In the case of allotment of shares for a public offering by issuers or public companies, it must be completed no later than 2 (two) working days after the end of the public offering period.
14. In the event that there is a refund for the share purchase order that passes 2 business days, shareholders of the issuer or public company are required to pay compensation for delays after the allotment period ends.
15. Shareholders of issuers or public companies are required to submit a report on the results of the public offering to OJK no later than 3 working days after the share allotment ends with predetermined information.”

(vide POJK 76/POJK.04/2017 CHAPTER II Article 2 – Article 18)

In addition, it is also regulated in Law 8/1995 and Law 4/2023 the provisions regarding the procedures for the process of parties conducting public offerings or commonly referred to as issuers and public companies in the IPO mechanism include the following:

In Chapter IX issuers and public companies, the first part regarding the registration statement of Article 73 of Law 8/1995 that:

“Every Public Company is required to submit a Registration Statement to Bapepam”.

Regarding the procedure for submitting the registration statement in the second part of Law 4/2023 Article 74, that the registration statement becomes effective on the 20 (twenty) working day from the receipt of the complete registration statement or on an earlier date declared effective as Article 74 paragraph (1) of the Law 8/1995 that reads as follows:

• “The Registration Statement becomes effective on the 20 (twenty) working day from the receipt of the complete Registration Statement or on an earlier date if declared effective by the OJK”.

In the case of submitting a registration statement that has been received by OJK, OJK may request changes and additional information if the issuer or public company submits that it has submitted changes or additional information and has been received by OJK with the period of submission of such changes or additions. As explained in Article 74 paragraph (1) – paragraph (7) of Law 4/2023 that reads as follows:

• “The Registration Statement becomes effective on the 20 (twenty) working day from the receipt of the complete Registration Statement or on an earlier date if declared effective by the OJK.

• Within the period referred to in paragraph (1), the OJK may request changes and/or additional information from the Issuer or Public Company.

• In the event that the Issuer or Public Company submits changes and/or additional information as referred to in paragraph (2), the Registration Statement is deemed to have been submitted again on the date of receipt of the change or additional information.

• In the event that the OJK requests changes and/or additional information from the Issuer or Public Company as referred to in paragraph (2), the calculation of time for the effective Registration Statement is calculated from the date of receipt of the change and/or additional information.

• The Registration Statement cannot become effective until such time as changes and/or additional information as referred to in paragraph (3) are received and have fulfilled the requirements set by the OJK.

• The term of the Registration Statement may be changed to be effective sooner than the 20 (twenty) working day from the receipt of the complete Registration Statement.

• Changes in the period of the Registration Statement become effective sooner than the 20 (twenty) working day from the receipt of the complete Registration Statement, further regulated by the OJK”.

Furthermore, related to the registration statement document submitted by the issuer or public company to the OJK, the Bapepam Institution must still pay attention to the completeness, clarity of documents related to the registration statement meeting the principle of openness without an assessment of the advantages or weaknesses of the securities of an issuer or public company as explained in Article 75 of Law 8/1995 that reads:

• “Bapepam must pay attention to the completeness, adequacy, objectivity, ease of understanding, and clarity of the Registration Statement document to ensure that the Registration Statement meets the Principle of Openness;

• Bapepam does not assess the advantages and weaknesses of an Effect”.

If the statement of registration of securities to the Stock Exchange does not meet the requirements, the offer made by the issuer or public company, it may be null and void as explained in Article 76 of Law 8/1995 that reads:

“If in the Registration Statement it is stated that the Securities will be listed on the Stock Exchange and it turns out that the listing requirements are not met, the offering of the Securities is null and void and the payment of the said Securities order must be returned to the orderer”.

Furthermore, in the third part regarding prospectuses and announcements regarding registration statements made by issuers or public companies, there is a prohibition on containing incorrect information so as not to cause a misleading picture with a statement that Bapepam has authorized and conducted research on the advantages or weaknesses of a security offered by issuers or public companies as explained in Article 78 paragraph (1) – paragraph (3) Law 8/1995 as follows:

• “Each Prospectus shall not contain any untrue description of the Material Facts or contain any truthful description of the Material Facts necessary for the Prospectus not to paint a misleading picture.

• Each Party is prohibited from declaring, either directly or indirectly, that Bapepam has approved, authorized, or authorized a Securities, or has conducted research on various aspects of the advantages or weaknesses of a Securities.

• The provisions regarding the Prospectus are further regulated by Bapepam”.

There is a prohibition related to the announcement of prospectuses that contain incorrect information in the mass media as explained in Article 79 of Law 8/1995 that reads as follows:

• “Any announcement in the mass media in connection with a Public Offering shall not contain false statements of Material Facts and/or do not contain statements of Material Facts necessary so that the information contained in such announcement does not present a misleading picture.

• The matters announced and the contents and requirements of the announcement as referred to in paragraph (1) are further regulated by Bapepam”.

If there is a violation related to the registration statement regarding the public offering, that contains incorrect information in accordance with the provisions of this law and its implementing regulations, the parties responsible for the registration statement have responsibility for losses incurred by their opinions or statements by being sentenced to a claim for compensation within the specified period, as explained in Article 80 of Law 8/1995 that sound:

• “If the Registration Statement in the framework of the Public Offering contains incorrect information about Material Facts or does not contain information about Material Facts in accordance with the provisions of this Law and/or its implementing regulations so that the information is misleading, then each Party that signs the Registration Statement of directors and commissioners of the Issuer at the time the Registration Statement becomes effective Underwriter; and Capital Market Supporting Professions or other parties who provide opinions or information and whose approval is contained in the Registration Statement must be responsible, individually or jointly, for losses arising from such actions.

• The party referred to in paragraph (1) point d is only responsible for the opinion or information it provides.

• The provisions referred to in paragraph (1) shall not apply in the event that the Party referred to in paragraph (1) point c and letter d can prove that the Party concerned has acted professionally and has taken sufficient steps to ensure that:

1. the statements or particulars contained in the Registration Statement are true; and
2. no Material Fact known to him that is not contained in the Registration Statement is necessary for the Registration Statement not to be misleading.

• Claims for compensation in the event of a violation as referred to in paragraph (1) can only be filed within a period of 5 (five) years from the effective Registration Statement”.

Another case if the party offering or selling securities by filing a prospectus with incorrect information but the party knows about it, then the party must be responsible and cannot file a claim for compensation for losses for securities transactions made, as explained in Article 81 Law 8/1995 that reads as follows:

• “Any Party offering or selling Securities by means of a Prospectus or otherwise, whether written or oral, that contains incorrect information about a Material Fact or does not contain information about a Material Fact and that Party knew or should have known about it shall be liable for any loss arising from such conduct.

• Buyers of Securities who have known that such information is false and misleading prior to executing the purchase of such Securities may not file a claim for compensation for losses arising from such Securities transactions”.

In the case of securities offerings made by issuers or public companies, OJK is obliged to provide securities ordering rights to shareholders proportionally, that is done if the issuer or public company issues shares or securities that may be exchanged with the majority approval of independent shareholders as explained in Article 82 of Law 4/2023 that reads:

• “The OJK may require Issuers or Public Companies to provide preemptive rights to each shareholder proportionally.

• Preemptive rights as referred to in paragraph (1), can be exercised if the Issuer or Public Company issues shares or Securities that can be exchanged for shares of the Issuer or Public Company.

• The OJK may require the Issuer or Public Company to obtain the approval of the majority of independent shareholders if the Issuer or Public Company conducts a transaction where the economic interests of the Issuer or Public Company conflict with the personal economic interests of the directors, commissioners, or major shareholders of the Issuer or Public Company.

• The OJK may require the Issuer or Public Company to obtain shareholder approval in the event that the Issuer or Public Company conducts material transactions, changes in business activities, Affiliate transactions, mergers, splits, mergers, consolidations, capital reductions, or share buybacks.

• In order to fulfill the principle of openness and protect the public interest, the OJK may require the Issuer or Public Company to obtain the approval of the majority of independent shareholders if the Issuer or Public Separation will conduct transactions other than the provisions as referred to in paragraph (2)”.

With the offering activity to buy securities, issuers or public companies must comply with applicable regulations, as explained in Article 83 of Law 8/1995 that reads as follows:

“Every Party that makes a tender offer to purchase Securities of Issuers or Public Companies must follow the provisions regarding disclosure, fairness, and reporting stipulated by Bapepam”.

If there is a cancellation of the listing of shares on the stock exchange, a public company is required to change it is status and voluntarily change it is status as a closed company after fulfilling the requirements regulated by the OJK as explained in Article 84A of Law 4/2023 that reads:

• “A public company that is canceled from listing its shares on the Stock Exchange must change its status to a closed company within a certain period stipulated in the OJK Regulation.

• A public company can voluntarily change its status to a closed company after fulfilling the requirements regulated by the OJK”.

However, it should be noted in practice in the capital market, “For companies that carry out activities in the capital market, the provisions of laws and regulations regarding limited liability companies apply, as long as they do not conflict with the provisions of laws and regulations in the field of capital markets”. As stated in Law 4/2023 Article 69D paragraph (1).

Launching from the IDX website, currently we may see the guidelines clearly through the guidelines that we may download on the official IDX website regarding IPO guidelines. This certainly makes it easier for potential investors and also prospective companies who want to do an IPO or may also be called go public.

1. Conclusion

Basically, there are many advantages for companies to conduct public offerings or IPO or commonly called companies going public, some of that are, access to funding in the stock market, gaining additional trust for access to loans, growing professionalism, improving company image and much more. But of the many benefits for companies that conduct IPO, of course, they still have some consequences that will borne by the company where with the entry of public investors, the founding shareholders no longer own the company with full ownership and must also share the vote in the general meeting of shareholders.

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