Is A Foreign Company Obligated to Divest Its Shares?

“Share divestment is the reduction of some kind of assets that are possessed by a company.”

Essentially, divestment is aimed to provide some opportunities to the government (especially local government) to own some shares of one company that is carrying out exploitation and exploration during the mining process.

If the government (either it is central government or local government) only obtain one income from royalty towards the contract of work (kontrak karya) during the mining process, then by doing shares divestment, the local government will obtain more income that comes from two sources, namely royalty from a contract of work and dividend of a company.

According to Merriam Webster, divestment is to deprive or dispossess especially of property, authority, or title. Meanwhile, according to Article 1 number 19a The Investment Coordinating Board (Badan Koordinasi Penanaman Modal “BKPM’) Regulation Number 5 of 2019 concerning Guidelines and Procedures for License and Investment Facilities (hereinafter stated as BKPM Regulation 5/2019) states that share divestment is a number of foreign shares that have to offer to be sold to  Indonesia party.

Read More : 5 Differences in Investment Procedure for Domestic Investment and Foreign Investment

To simplify the statement above, divestment on a foreign company (Perusahaan Penanam Modal Asing “PT PMA”) is the reduction of some shares that are possessed by the foreign party to the Indonesia party by complying with the valid regulation.

Currently, all the regulation regarding share divestment is already regulated in The Investment Coordinating Board Regulation Number 4 of 2021 concerning Guidelines and Procedures for Risk-Based Business (hereinafter stated as BKPM Regulation 4/2021).

According to Article 14 section (3) BKPM Regulation 4/2021, divestment may be conducted by two parties, namely:

1. Individual Indonesian citizen; or
2. Indonesia enterprise that whole its capital shares are owned by Indonesian citizens by direct ownership based on the agreement between the parties and/or domestic capital market.

Furthermore, the amount of direct ownership for Indonesian citizens or Indonesian enterprises is at least 10 million rupiahs for each shareholder (Article 14 section (4) BKPM Regulation 4/2021).

Meanwhile, the indirect ownership through the domestic capital market is regulated further on capital market regulation.

Based on BKPM Regulation 4/2021, the share obtained by the Indonesia party as a result of divestment can be resold to:

1. Individual Indonesian citizen or foreign citizen;
2. Indonesia enterprise or foreign enterprise after obtaining approval from Indonesia Ministry of Law and Human Rights.

If the implementation share divestment has been done, the company has to change its data through Online System Submission (OSS) System (Article 14 section (10) BKPM Regulation 4/2021). 

There is some concession for a foreign investment company (PT PMA) to not release its share on the condition that the shareholders are not agreeing to the divestment even there is an agreement for a foreign investment company to divest some share (Article 14 section (8) BKPM Regulation 4/2021).

However, as a consequence, the shareholders are also responsible if there are Indonesian parties that demand the shares from divestment. 

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Author: Bima Satriojati