Introduction

Although this time may not be directly related to ESG, I would like to explain the changes to Indonesia's M&A regulations.
The M&A market in Indonesia has been active in recent years, and it is likely that many foreign companies, including Japanese companies, will be considering entering the country's growing market.
However, the strengthening of competition law regulations, as described below, is expected to have an impact on M&A procedures and strategies.
Specifically, Indonesia's Competition Supervisory Board (KPPU) Regulation No. 3 of 2023 ( the "New Regulation"), which came into effect on March 31, 2023, aims to ensure fair market competition by making significant changes to the notification obligations and review process for M&A.

The basis of Indonesia's competition law is Act No. 5 of 1999 of the Republic of Indonesia on Prohibition of Monopolistic Practices and Unfair Business Competition.
The Japan Fair Trade Commission's website has a very good summary of the information .

Below, we will explain the key changes in the new rules and consider how they will affect M&A.

What's in the new rules?

Introduction of an electronic notification system

The new rules require merger notifications to be filed electronically.

To file, companies must enter details of the transactions in question into an online system and upload required documents.
Specifically, you will be asked to submit merger or acquisition agreements, business plans, financial statements, and relevant company information.

Submissions can be made on business days between 9am and 2pm.
This is a time frame set to avoid system maintenance and out-of-hours responses, and companies must enter accurate information within this time frame. That's a short reception time...

All documents submitted must now be written in Indonesian.
To comply with Indonesian law, all filing documents must be submitted with official translations.
Incorrect translations or incomplete documents may delay acceptance.
In Indonesia, there is a trend towards a more thorough use of the Indonesian language.

Once the notification is received, the KPPU will issue a registration number within three business days and notify you of the review result within a maximum of 90 business days.
The KPPU will review the filing documents for completeness and request corrections if any deficiencies are found.
Companies are urged to comply with the KPPU's instructions and make any necessary corrections promptly.
The 90 business day review period is the maximum and may be shortened depending on the size and impact of the transaction.

Clarification of reporting requirements

The new rules set out the M&A notification requirements based on the following criteria:

First, filing obligations only arise if both parties have assets or sales in Indonesia.
This applies to transactions that may affect market competition in Indonesia, and aims to maintain a fair competitive environment while minimizing the impact on the domestic economy.
In addition, if a company has direct business relationships within Indonesia, it is highly likely that it will be obligated to file a notification, and therefore it may be necessary to seek the advice of legal professionals such as accountants at an early stage of M&A.
Furthermore, depending on the type of transaction, even if it is in the form of an equity acquisition or business transfer, if it is determined that it will have an impact on the Indonesian market, it may be necessary to notify the KPPU, so careful consideration is required.

The basis for calculating the value of this asset will be changed to only take into account assets located within Indonesia.
Under the previous rules, the asset value of the entire corporate group could be subject to review, but the new rules have changed so that only assets located in Indonesia are considered as the basis for review.
This change may mean that foreign companies with significant assets outside Indonesia will not be required to file a notification if their domestic assets do not exceed a threshold.
On the other hand, companies will be required to review their asset valuation methods and provide proper reporting, making it important to conduct accurate asset valuations in cooperation with the finance department.

Regarding sales revenue, the calculation basis for sales revenue will remain unchanged, meaning that sales revenue within Indonesia will be the basis.
This is likely because sales revenue is considered an important indicator for assessing the extent to which a company's sales affect the competitive environment in the Indonesian market.
Therefore, companies need to accurately determine their domestic sales (by asking an accountant for help).

Introduction of filing fees

As a result of the new rules, fees will now be charged for M&A filings.

Specifically, the fee is set at 0.004% of the asset value or turnover (maximum of Rp 150 million).
If you reach the upper limit, it will be quite a lot of money...
The purpose of this is believed to be to enable the KPPU to monitor market competition and discourage unnecessary mergers.
Although the commission rate is small, it can be high for larger transactions, so companies need to calculate costs from the early stages of M&A and secure a budget in advance.

Of course, this fee applies only to transactions that are required to be notified.
This means that it does not apply to all M&A transactions, but only where notification thresholds are met.

The requirement to pay fees has resulted in additional costs in large M&A transactions.
For the specific scope of applicable fees and payment schedules, it is necessary to check the KPPU regulations and guidelines and take appropriate action in a timely manner.

Potential impact on future M&A

The implementation of the new regulations is likely to have several impacts on M&A conduct in Indonesia.

Impact on transactions between foreign companies

Even in cases of M&A between foreign companies, notification obligations may arise if both parties have assets or sales in Indonesia.
Previously, either party was required to report this, so it appears that this will be relaxed.
On the other hand, as mentioned above, there are some points that may have an impact, including in terms of cost, which are explained below.

Rising M&A costs

As mentioned above, the introduction of filing fees will increase the costs of M&A.
While the additional costs of up to 150 million rupiah (approximately 1.5 million yen at current rates) for a large M&A deal may not have a huge impact, it will certainly be a significant increase in costs.

Strengthening competition law compliance

With the KPPU's review process now clarified, companies are likely to be required to assess competition law risks in advance and strengthen their due diligence.
In particular, since the KPPU's review focuses on the assessment of market power and the impact of the transaction on the competitive environment, we believe it is important to conduct sufficient business due diligence before carrying out an M&A transaction.

summary

Indonesia's M&A market is expected to continue to grow, but the implementation of the new regulations will require companies to be more careful in assessing risks and calculating costs in advance.
In particular, even in cases of M&A between foreign companies, the presence or absence of assets and sales in Indonesia is an important factor in determining notification obligations.

Here are three key steps that companies should take:

Understand the impact of new regulations and find out in advance if they apply to you
At the early stages of an M&A transaction, we can review whether assets and sales in Indonesia exist and determine whether regulations apply.

Calculate costs at the M&A planning stage and create a budget plan that takes fees into account .
By calculating M&A costs, including filing fees, and thoroughly managing the budget, it is possible to prevent unexpected expenses.

Utilize pre-consultation with the KPPU to assess the risk and notification obligations in advance .
Strengthening competition law compliance and confirming the KPPU's views in advance can lead to a smooth M&A implementation.

In the future, it will be extremely important for companies considering entering the Indonesian market to fully understand not only the competition law-related regulations explained here, but also the latest regulatory trends, especially those that may result in sanctions in the event of a violation, and to put in place a system to ensure a smooth M&A process.