Revision sought for material deal rules

Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Thu, 07/02/2009 1:36 PM  |  Business

The Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) plans to revise the regulation on *material transactions' in an attempt to help boost transparency in the stock market and to help reduce legal loopholes.

Under existing regulations, transactions are classified as material if they comprise buying or selling activities that involve shares, assets or a business segment, whose value accounts for 10 percent or more of a company's annual revenue and 20 percent or more of a company's total equity.

This definition will be revised, so that material transactions will henceforth be defined as buying or selling activities that involve shares, assets, or funds, whose value accounts for 20 percent of the company's total equity and carried out in one transaction or a series of transactions with a common purpose.

This follows on from the case of coal giant PT Bumi Resources, whose recent three acquisition deals were put under the Bapepam microscope on the grounds of allegations that the combined value of the three deals fitted the material transaction criteria, so that the company should have secured approval from a shareholders' meeting first - something that Bumi did not do.

The results of the investigation cleared Bumi of any wrongdoings, justifying company claims that the deals were separate and could not be construed as being material.

The investigation centered on Bumi's acquisitions of Dharma Henwa (DEWA), Fajar Bumi Sakti (FBS) and Pendopo Energi Batubara (PEB) with a total acquisition value of Rp 6.18 trillion (US$611.8 million).

Bapepam however denied that the change in regulation was made because of the Bumi case, with a top official Djustini Septiana saying the new regulation was aimed at avoiding confusion in interpreting the regulations in future by providing more detailed criteria.

"The regulation also stipulates that the company must appoint appraisers to give opinions on fairness concerning the transactions," she said, adding that should it fail to arrange appraisers, then the company must seek approval for the transactions from a shareholders' meeting.

The existing regulation only states the company is required to seek an independent party to examine transactions.

Also in a change from the existing regulation, a company carrying out a transaction with a value accounting for between 20 percent and 50 percent of the company's equity, is no longer obliged to seek approval from a shareholders' meeting.

For any transaction valued at more than 50 percent of the company's total equity, the company is then required to hold a shareholders' meeting.

The existing regulation states that a company carrying out material transactions must have approval from a shareholders' meeting.

Other key items subject for revision

* The financial reports that will be used as the benchmark for the calculations are dated not more than 12 months before the transactions or shareholder's meetings.

* Material transactions that have been approved by the shareholder's meeting should be carried out within a period of 12 months.

* Exceptions are given for transactions related to factory expansion or for deals that are part of the company's main business activities and for companies that have secured loans from banks or non-bank institutions, etc.

Source: Bapepam

Copyright © 2008 The Jakarta Post - PT Bina Media Tenggara. All Rights Reserved.