Regulation On Multiple Voting Shares For Digital Start-Up Company’s IPO In Indonesia.

 

9 July, 2021

 

 

The Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) unveiled its proposed legal framework concerning implementation of multiple voting shares classification for digital start-up companies conducting initial public offering (“Draft Regulation”). The OJK has made it clear that the Draft Regulation is their high priority and is expected to be issued in a moment. The adoption of multiple voting shares (“MVS”) for digital start-up’s initial public offering (“IPO”) under the Draft Regulation is hoped to provide protection to the founders by ensuring their power and control in the management of the company post IPO. In general, MVS enables the founders to maintain their autonomy in the company management although their shareholding percentages are much lower than the other investors.

 

Background and Market Context

 

Indonesia tech giants are anticipated to join the wave of IPO driven by other unicorns globally. IPO is seen as a key milestone for tech start-ups, specifically for the investors who wish to exit and benefit from their investment. Many major stock exchanges around the world compete with each other at wooing tech giants to list on their stock market. Once enacted, the Draft Regulation is expected to encourage Indonesian tech giants to list their shares in domestic stock exchange instead of pursuing IPO outside Indonesia, where issuance of dual-class share with MVS is allowed. 

 

Criteria

 

Under the Draft Regulation, any tech company wishing to issue dual-class shares with MVS (“Issuer”) must fulfill certain criteria:

 

1. must use technology to create product innovations that increase productivity and economic growth and have broad social benefits;
2. must have shareholders who have a significant contribution in the utilization of technology as referred to in point (a);
3. must maintain total net assets of at least Rp 2 trillion;
4. must have carried out operational activities for at least 3 (three) years;
5. must have a compound annual growth rate of total assets for the last 3 (three) years of at least 35% (thirty five percent);
6. must have a compound annual growth rate of income for the last 3 (three) years of at least 30% (thirty percent);
7. the company have never carried out public offering of equity before.

 

The issuer must clearly state the adoption of MVS in its articles of association along with information on shareholders owning MVS shares. To obtain statement of registration for IPO from the OJK, the issuer must provide a statement letter from MVS shareholders describing their contribution for the company together with evidence for the said contribution

 

The Draft Regulation specifically mentions that MVS shareholders, either jointly or individually, may only possess maximum of 47.3% of the total shares issued and paid-up in the company. If the MVS shareholders possess more than 47.3% of the total shares issued and paid-up in the company, the remaining shares will be considered as ordinary shares by operation of law. In addition, the MVS shareholders, either jointly or individually, must possess more than 50% of total voting rights in the company.

 

Ratio of Voting Rights

 

The Draft Regulation also stipulates ratio of voting rights between the MVS shares and the ordinary shares, as follows:

 

1. if the number of MVS shares is at least 10% up to 47.3%, the ratio of voting rights between the ordinary shares and MVS shares is 1:10;
2. if the number of MVS shares is at least 5% up to less than 10%, the ratio of voting rights between the ordinary shares and MVS shares is 1:20;
3. if the number of MVS shares is at least 3.5% up to less than 5%, the ratio of voting rights between the ordinary shares and MVS shares is 1:30; and
4. if the number of MVS shares is at least 2.5%, the ratio of voting rights between the ordinary shares and MVS shares is 1:40.

 

Termination of MVS

 

MVS shares can be converted into ordinary shares by operation of law, if one of the following conditions occur:

 

• MVS shareholders pass away or put in a custody, and within a period of maximum of 3 (three) months, the relevant MVS shares are not transferred to other MVS shareholders;
• MVS shareholders transfer their shares to other parties who are not classified as MVS shareholders;
• MVS shareholders possess less than or equal to 50% of the total voting rights in the company and such condition has been continuing for more than six months;
• period of MVS has expired (i.e., 10 (ten) years as of the effective date of statement of registration from the OJK);
• MVS shareholders in the form of legal entities are: (i) no longer controlled by parties designated as MVS holders and such condition has been continuing for at least six months; (ii) declared dissolved.