COVID-19: Governance (Indonesia): Regulatory Changes For Markets, Listings And Listed Companies

In response to the COVID-19 pandemic, Indonesia’s Stock Exchange and Financial Services Authority have implemented several new policies and revised existing ones to support the markets and capital raisings.

The Indonesian Stock Exchange (IDX) has implemented new policies to support the markets and capital raisings during the COVID-19 outbreak. The IDX has relaxed rules on:

• short-selling trading
• auto rejection
• trading hours
• incidental halting and suspension of trading activities

The exchange has also extended deadlines for annual and financial reporting obligations of listed companies. 

Indonesia’s Financial Services Authority (OJK) has also revised policies in March 2020 in response to the outbreak, with changes covering: 

• the deadline for submitting annual reports of listed companies, 
• the extension of validity of financial statements for public offerings and other transactions, 
• the book-building period, and
• the cancellation or postponement of public offerings. 

OJK POLICY CHANGES ON PUBLIC OFFERINGS AND OTHER CAPITAL MARKET TRANSACTIONS

OJK’s Letter No. S-101/D.04/2020, issued on 24 March 2020, contained several important policy changes.

Extension of validity of financial statements and valuation report 

The period permitted between the audited financial statement (and the cut-off date for a valuation report) used for public offerings and the OJK’s declaration of effectiveness of the registration statement has been extended as follows:

1. For audited financial statements (and cut-off dates for valuation reports) up to 30 November 2019, OJK has extended the deadline for obtaining OJK’s effective statement by three months. This means that OJK’s effective statement can now be obtained up to nine months after the effective date of the financial statement. So, if the public offering uses financial statements “as at 30 September 2019”, OJK’s effective statement can now be issued up until 30 June 2020.
2. For audited financial statements (and cut-off dates for valuation reports) after 30 November 2019, OJK has extended the deadline for obtaining OJK’s effective statement by two months. This means that OJK’s effective statement can now be obtained up to eight months after the financial statement. So, if the public offering uses financial statements "as at 31 December 2019", OJK’s effective statement can now be issued up until 31 August 2020.

Previously, OJK’s effective statement for a public offering had to be obtained within six months of the date of the financial statements being used as a basis for the offering. 

The public offering prospectus is however required to disclose the proforma financial highlights of the issuer between the date of the audited financial statements used for the public offering and more recent financial information prior to OJK’s effective date.

We note that this extension also applies to material transactions, affiliated party transactions and conflict-of-interest transactions.

Extension of book-building period in public offerings

Issuers in a public offering can now submit confirmation of the number of shares, offer price and interest rate for bonds up to two months after the announcement of the abridged prospectus and/or the issuance of OJK’s pre-effective statement. 

Prior to the issuance of the OJK Letter, confirmation of the offering structure had to be submitted to OJK within seven to 21 working days (ie, up to one month) after the announcement of the abridged prospectus and/or issuance of OJK’s pre-effective statement. 

Recent market conditions declared an event with a significant impact on issuer’s business

Under the existing rules (OJK Regulation IX.A.2), once OJK has issued the effective statement, a public offering can only be postponed or cancelled for one of the following three reasons:

1. a 10% drop in the composite IDX index on three consecutive exchange days
2. a force majeure event (natural disaster, riot, strike, war, etc)
3. another event that OJK deems to have significant impact on the issuer’s business.

In the OJK Letter, two circumstances are recognised as meeting the conditions for point (c) to now apply as a basis for postponing or cancelling a public offering:

• significant pressure on IDX trading conditions, as indicated by the steady decline of the composite IDX index (18.46% from 1 January to 9 March 2020)
• slowing regional and global economic conditions due to COVID-19, among other things.  

The OJK Letter also sets out the procedure for issuers to recommence the public offering period.

The provisions of the OJK Letter will remain valid until determined otherwise by the OJK.

LOWER THRESHOLD FOR AUTO REJECTION IN IDX TRADING AND CESSATION OF PRE-OPENING TRADING

The IDX has issued new equity-type securities trading rules through Decision Letter No. Kep-00025/BEI/03-2020 dated 12 March 2020 (Rule II-A 2020). The main changes introduced by this regulation are as follows:

• reducing the floor percentage for auto rejection to a maximum of 7%; and
• setting the auto rejection threshold for trading in IPO shares (ie, initial trading once the shares have been listed on the IDX) at the same level as the auto rejection threshold which applied for trading on the regular and cash markets (the IPO threshold was previously double the regular trading threshold). 

The IDX has also removed all shares from the pre-opening trading session, meaning that shares can no longer be traded in the pre-opening session until further notice. 

The IDX securities trading system will now automatically reject a sale offer and/or purchase order for equity-type securities in the regular IDX market if:

a) the sale offer or purchase order price is less than Rp.50

b) the sale offer or purchase order price is:

1. more than 35% above or 7% below the reference price, for stocks with a price range between Rp.50 and Rp.200
2. more than 25% above or 7% below the reference price, for stocks with a price range between Rp.200 and Rp.5,000
3. more than 20% above or 7% below the reference price, for stocks with a price of Rp.5,000 and above.

The reference price refers to: (i) the opening price (harga pembukaan) on the regular and cash markets; (ii) the closing price (harga penutupan) on the previous trading day, if the opening price is not available; (iii) the theoretical price as a result of a corporate action (harga teoritis hasil tindakan korporasi) where the company concerned is conducting a corporate action; or (iv) the initial price at which the shares first traded on the IDX.

c) the volume of an offer to sell or acceptance to buy exceeds 50,000 lots or 5% of the total equity listed on the IDX, whichever is lower.

PROHIBITION ON SHORT SELLING

The IDX announced a general prohibition on short-selling transactions on the IDX on 2 March. This prohibition was implemented through the following measures: 

• IDX will no longer publish lists of securities that are permitted to be transacted on a short-selling basis. 

As background, IDX Regulation No. II-H on Securities Trading and Requirements for Margin and Short-Selling Transactions provides that short-selling transactions can only be conducted on certain securities as determined by the IDX through a list of securities published by the IDX on a regular basis.  

• IDX will no longer process applications from IDX members to conduct short-selling transactions.
• IDX members are required to ensure that none of their transactions are short-selling transactions, whether carried out on their own behalf or for their clients.

This prohibition is in effect until further notice.

IDX EXTENDS DEADLINES FOR FINANCIAL REPORTING OBLIGATIONS OF LISTED COMPANIES

In parallel with OJK’s deadline extensions for annual financial statements filing, the IDX issued a similar policy on 20 March through Decision Letter No. Kep-00027/BEI/03-2020. 

The deadlines for listed companies to submit their annual reports, annual financial statements and interim financial statements as of 31 March 2020 have all been extended by two months:

a) annual reports and financial statements can now be filed up until 31 May, extended from 31 March

b) interim financial statements as of 31 March 2020 can now be filed up until:

• 30 June for unaudited interim financial statements (previously 30 April)
• 31 July for limited reviewed interim financial statements (previously 31 May)
• 31 August for audited interim financial statements (previously 30 June).

These extensions are in effect until further notice.

HALTING OR SUSPENSION OF TRADING

The IDX amended the guidelines on trading during an emergency through Decision Letter No. Kep-00024/BEI/03-2020 on 10 March 2020. 

Under the new guidelines, in case of panic selling on the market that causes the composite IDX index to plummet in a single trading day, the IDX may take the following actions:

SHORTER IDX TRADING HOURS

The IDX issued Decision Letter No. Kep-00031/BEI/03-2020 on March 26th, temporarily shortening the trading session hours for share transactions on the cash, regular and negotiated markets. The new trading session hours are as follows.

These new trading session hours are in effect until further notice.

CONCLUSION

The new OJK and IDX policies reflect the concerns of the two main regulatory bodies overseeing Indonesian listed companies and capital markets over the challenges caused by the COVID-19 pandemic for public companies, prospective public companies and market disruptions. 

Extending the validity period of financial statements and the book-building period for public offerings is intended to encourage potential issuers not to abandon their proposed public offerings despite slowing market conditions. Extending the deadlines for reporting obligations gives public companies more time to comply with their obligations. 

We will continue to keep you updated on further regulatory and policy developments relevant to Indonesian issuers and capital markets.