New OJK regulation on share buybacks by public companies

Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) has issued OJK Regulation No. 29 of 2023 on Buybacks of Shares Issued by Public Companies (OJK Regulation 29/2023) to address some practical challenges in implementing share buybacks under the previous regulation. The new regulation also provides more options for retransferring treasury shares.

OJK Regulation 29/2023 regulates share buybacks under normal market conditions, while share buybacks under significantly fluctuating market conditions are covered by a separate OJK regulation (discussed here).

Key notable changes introduced under OJK Regulation 29/2023 include, among others:

• 12-month share buyback period after the date of the shareholders meeting approving the share buyback (previously, 18 months);
• new requirements on the funding sources for share buybacks (including, among other things, that the share buyback should not materially affect the company’s ability to meet its short-term obligations or liquidity (for example, the company’s current ratio should exceed 110 percent) and the funds should not be sourced from financings or public offerings;
• prohibition of concurrent implementation of share buybacks under normal conditions with share buybacks under significantly fluctuating market conditions;
• clearer conditions for holding treasury shares for up to six years; and
• more options for retransferring treasury shares.

The latter two points are discussed below.

Generally, a public company may only hold treasury shares for up to three years, which period can be extended for up to three additional years if certain conditions are met:

• an extension for two years if (a) at least 10 percent of the treasury shares have been retransferred or (b) the share price never exceeds the average share buyback price over the last three years (if neither of these conditions is met, the period can only be extended for one year); and
• an additional extension for one year if the public company still holds treasury shares after the two-year extension expires.

During that period, public companies should not carry out share buybacks, except under significantly fluctuating market conditions.

OJK Regulation 29/2023 contains two additional retransfer methods: (i) a transfer of treasury shares to shareholders on a proportionate basis, and (ii) a transfer of treasury shares to pay for or settle certain transactions. These two methods are both subject to shareholders’ approval, and examples of those certain transactions may include asset purchases or the payment and settlement of loans and bonds.

Similar to the previous OJK regulation on buybacks of shares issued by public companies, OJK Regulation 29/2023 still allows treasury shares to be refloated on or over the IDX counter. In the case of refloating treasury shares on the IDX counter, the refloat price should not be lower than:

1. the average price of share buybacks, or
2. the higher of (i) the previous closing price prior to the refloat date and (ii) the average closing price within the 90 days prior to the refloat date, with a discount of up to 7.5 percent.

Certain requirements under OJK Regulation 29/2023 also apply to share buybacks when going private, such as the disclosure and reporting requirements, and the requirement to use a broker for a share buyback on the IDX counter.

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Please reach out to the authors or your usual contacts if you have any questions on how OJK Regulation 29/2023 might affect plans for a share buyback or to go private.