Indonesia has issued a new presidential regulation that increases foreign ownership limits for certain local businesses and properties.

The negative investment list was issued to improve the nation’s investment climate for both foreign and domestic investors, and also in order to comply with the ASEAN Economic Community commitment, officials say.

The government, for example, raised the maximum ownership for foreign investors in the construction sector to 67 percent from 55 percent, and the hospital services sector to 67 percent and 65 percent under the new negative investment list.

Hospitals owned by foreign investors can expand their activities nationwide, the regulation states.

“Foreign investors can also own up to 95 percent of power plants,” said Investment Coordinating Board (BKPM) head Gita Wirjawan in a press conference Wednesday.

Coordinating Economic Minister Hatta Rajasa also attended the press conference.

A crucial article in regulation No. 36/2010 rules that a foreign investor owning a controlling stake larger than allowed under then new regulation after a rights issue must release their shares within two years to comply with the limits set by the regulation.

Foreign investors can then sell their shares to domestic investors, or through Indonesia’s stock market, or the company can buy the shares, to be treated as treasury stock.

The regulation does not cover portfolio investors who buy shares from the stock market, Gita said. “If there are foreign investors considered as a controlling stakeholder, then the regulation becomes effective,” he said.

The regulation also recognizes a grandfather clause, meaning the new regulation will not affect investors that have complied with the previous regulation issued in 2007, he added.

“This regulation also recognizes law hierarchy, so other regulations whose hierarchies are below this regulation are not effective,” said Gita, adding that Indonesia wanted to eliminate investment uncertainties.

In line with the ASEAN Economic Community commitment, the regulation sets out an attachment providing ASEAN investors higher maximum ownership in some sectors, including cargo handling, foreign sea vessels and recreation.

ASEAN investors may own up to 60 percent of cargo handling services, higher than the 49 percent regulated for other foreign investors.

ASEAN investors can also own up to 60 percent of foreign sea vessels and 100 percent of recreation
businesses.

“Therefore, there will no longer be inconsistencies between domestic and ASEAN [regulations],” said Deputy Trade Minister Mahendra Siregar.

Also in the regulation, the government stipulates ownership of base transceiver stations must be 100 percent local, after an intense debate between BKPM and the Communications and Information Technology Ministry.

Highlights of Negative Investment List

•    Existing investors can expand the same activities in different locations without having to establish new institutions, unless laws forbid.
•    Portfolio investors in the stock market are not regulated by the regulation.
•    In a takeover, the ownership of surviving companies should be as stated in the permit.
•    In a rights issue, foreign investors can purchase shares if local investors do not participate. If their shares are more than allowed, within two years they should sell the shares to local investors, or through the stock market, or the company could buy the shares to be treated as a treasury stock.
•    There is a grandfather clause, which means companies that already have permits before the new regulation is effective do not have to follow the new regulation.
•    Relevant regulations that are ranked below the new regulation would to defer to the new regulation.
•    Previously closed sacarine and siclamat industries are now open with special permits.
•    Foreign investors can own 67 percent of construction businesses, up from 55 percent previously.
•    Foreign investors can own up to 45 percent of film-related businesses.
•    Hospital ownership by foreign investors is raised to 67 percent from 65 percent.
•    Foreign investors can own up to 95 percent of power plant businesses.
•    Foreign investors can own up to 49 percent of a plot of land larger than 25 hectares for planting staple foods, including corn, soybeans, beans.
•    Base transceiver stations can have no foreign ownership.

Source: Investment Coordinating Board (BKPM)

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