Indonesia's Financial Services Authority (Otoritas Jasa Keuangan or "OJK") has issued a rule that may provide a sweetener for tech startups to undertake an initial public offering ("IPO") in Indonesia.
OJK Rule No. 22/POJK.04/2021 on the Stipulation of a Share Classification with Multiple Voting Rights by Issuers with Innovation and High Growth Rates Conducting a Public Offering of Equity Securities in the Form of Shares ("POJK 22/2021") came into effect on 2 December 2021.
While private companies can generally have a share classification with multiple voting rights ("MVS"), this was not previously the case for public companies. One of the key concerns for startup founders in conducting an IPO in Indonesia is the potential dilutive effect on their ownership, which affects their ability to retain control of the company. By allowing these founders to hold MVS, startup founders will now have a mechanism to retain certain control over the company and protect their vision post-IPO.
POJK 22/2021 sets out specific criteria that must be fulfilled by companies that want to implement MVS when conducting an IPO of securities in the form of shares:
- must use technology to create innovative products that (i) promote productivity and economic development, and (ii) offer broad social benefits;
- have a shareholder that makes a significant contribution to the utilization of technologies within the company;
- have minimum total assets of IDR 2 trillion (approximately USD 140 million);
- have been operating for at least three years prior to submission of the IPO registration statement;
- have three-year compounded total asset growth of at least 20%;
- have three-year compounded total revenue growth of at least 30%;
- have not previously carried out an IPO.
POJK 22/2021 provides a lock-up period for two years after the effective date of the IPO registration statement. However, shares with multiple voting rights might turn into regular shares under the following conditions:
- the shareholder passes away and the shares have not been transferred to other shareholders of MVS or another appointed party within six months;
- the shareholder transferred their shares to another party that was not appointed to own MVS;
- the shareholder holds not more than 50% of the total voting rights continuously for at least six months;
- the validity of the shares with multiple voting rights has expired;
- the shareholder is a legal entity that no longer fulfills the prerequisites for a legal entity to own shares with multiple voting rights; or
- the shareholder was mandated to become a board member but no longer holds such position or can no longer carry out the duties as a board member based on the stipulation of the OJK.
The OJK allows shares with multiple voting rights to be valid for 10 years following the effective date of the IPO registration statement. This may be extended one time for a maximum of an additional 10 years, subject to the approval of a general meeting of independent shareholders.
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