Joel Hogarth, Partner, O Melveny & Myers (chair) Nicholas Serwer, General Counsel, Ancora International

Transcription

1 Panel Discussion: M&A Structuring IFLR Indonesia Forum October 18, 2012 # v1 Panelists Joel Hogarth, Partner, O Melveny & Myers (chair) Nicholas Serwer, General Counsel, Ancora International Bima Sinung Widagdo, Head of Legal, Toba Bara Sejahtra Antonius Sanyojaya, Director, Taxation, PwC Indonesia Siew Kam Boon, Counsel, O Melveny & Myers 1 1

2 REGULATORY TRENDS Reviewing the recent changes in the Mining Sector vs the Banking Sector 2 Changes to the Mining Sector: GR24 Previous 2009 Mining Law At least 20% local divestment by Year 5 from production New Government Regulation No. 24 of 2012 ( GR 24 ) Staged Local Divestment: - By Year 6 of production : 20% - By Year 7 of production : 30% - By Year 8 of production : 37% - By Year 9 of production : 44% - By Year 10 of production : 51% 2

3 Changes to the Mining Sector: GR24 Priority: Divestment must be made by tender offer in the following order of priority: Central Government Provincial/ Regent/ Municipal Government State Owned Company Private Company Anti-Dilution: Divestments require share sales Additional Implications of GR24 Permit applications are more difficult Now, IUPs for foreign-invested mining companies can only be issued by the Minister of Energy and Mineral Resources (cf local governments) IUPs can only be transferred to a subsidiary (at least 51%) Retrospective application U-turn on the general approach of the 2009 Mining Law to encourage foreign investment 3

4 Changes to the Mining Sector: Ore Exports Mineral exporters need to be registered and receive approval to export Requires: Working plan / Cooperation Agreement for domestic refining 20% export tariff on most mineral and ores (not coal) Export quota and definite export period Developing domestic refining is a costly process Export ban by 2014 of unprocessed mineral and ores Changes to the Banking Sector: Ownership Prompted by proposed takeover of Bank Danamon Ownership Restrictions under new BI regulations: Bank and Financials: up to 40% Non-Financials: 30% Individuals: 20% (25% in syariah banks) Compliance timeframes Banks with health and governance tests scoring 3 rd tier or below by Dec 2013 will have to divest excess shareholding 4

5 Changes to the Banking Sector: Ownership Possible to exceed 40% cap with BI approval subject to: Health tests: Capital Adequacy Ratio, Tier 1 Capital Ratio (at least 6%), recommendation from home regulator, commitment to support bank s capital Publicly traded Commitment to hold shares for definite period Consulation process culminated in a well thought out legislation Panelist Discussion 9 5

6 FOREIGN INVESTMENT Key Issues Faced by Foreign Investors 10 Overview of Key Issues Foreign Ownership Restrictions Enforcement Governance / Compliance Merger Notification Tax 6

7 Foreign Ownership Restrictions Direct Restrictions 2010 Negative List Certain sectors have foreign ownership legislation Certain ministries have passed their own regulations Indirect Restrictions Certain licenses can only be held by a domestic capital company preference to local providers Express divestment requirements Local participation rights and domestic market obligations Various exceptions apply, but with varying consistency and satisfactoriness Foreign Ownership Restrictions: ListCos 2010 Negative List applies to public companies Does not apply to indirect or portfolio investments transacted through the domestic capital markets If relevant threshold is breached due to participation in a rights issue, the foreign investor must divest the shareholding within 2 years 7

8 Enforcement Indonesian Court System Perception of corruption Process can take years (higher courts cannot substitute lower court judgements) Status Quo Ownership is a strong right Contract are weak rights Security is generally difficult to enforce Real Controls are possible Governance / Compliance Investors which are subject to FCPA or other Anti-Bribery Requirements Civil or criminal penalties Successor liability Pre-Investment Due Diligence Voluntary notifications to the Department of Justice Carve out of breaching entity Warranty and Indemnities on Past Conduct, Covenants on Future Conduct Post-Investment Compliance Programs 8

9 Merger Controls: Post-Merger Notification Administered by the Business Competition Supervisory Commission (KPPU) Post-merger notification is required within 30 (working) days of closing if: Parties combined asset value of Rp 2.5 trillion; and/or Parties combined sales value of Rp 5 trillion Failure results in a fine of Rp 1 bn for each day up to Rp 25 bn KPPU has the power to require a divestment, unwinding of a transaction or a fine 16 Voluntary Pre-Merger Notification Voluntary pre-merger notifications are available and is recommended if: Parties combined asset value of Rp 2.5 trillion; and/or Parties combined sales value of Rp 5 trillion; and/or Parties combined market share will exceed 50% on any relevant market Preliminary phase review: 30 (working) days; Second phase of review: additional 60 (working) days for comprehensive analysis; Final opinion: within 30 days 17 9

10 Tax Relatively high tax jurisdiction: Corporate tax rate of 25% Personal tax rate of 30% Withholding on repatriation of income offshore (20% - unless reduced by an applicable treaty) Withholding on sale of private shares (5% of purchase price) Various industries (e.g. oil & gas) have their own specific rules. Anti-Avoidance Measures: Requirement for substance in treaty jurisdictions 18 Crackdown on transfer pricing Panelist Discussion 19 10

11 EXIT OPTIONS Initial Public Offerings as an Exit Option 20 IPOs as an Exit Option Has been a popular route for sellers and investors Tax Final 0.1% (add 0.5% for founder shares) cf % (for onshore sellers) or 5% (for offshore sellers without tax treaty) Foreign Ownership Investors holding through convertibles, exchangeables, put options can exit or hold directly via the portfolio exemption 21 11

12 Panelist Discussion 22 Thank You! Comments and Questions Appreciated! 23 12