Obligation of Share Divestment for Foreign Investment in Indonesia

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Share divestment is disengagement, liberation, and reduction of capital, to be known as divestment. Divestment is a policy towards entire shares of the company to be owned by foreign investor on gradually but asurely divert its shares of the company to the local business partners or process which involve share divestment from foreign participants to local participants.

In Indonesian legislations, the definition of divestment could be found out in Art 1 (13) Government Regulation No. 1/2008 about Government Investment and Art 1 (1) Government Regulation of The Minister of Finance of Republic of Indonesia No.183/PMK.05/2008 about Divestment Requirements and Procedure to Government Investment.


The Deputy for Investment Services of Capital Investment Coordinating Board explain divestment in Indonesia consists of two types of divestments, that is:


·        Divestment by sector, such as Energy and Mineral Resources in Republic of Indonesia, regulated in the Government Regulation No.23/2010 about the Implementation of Mineral and Coal Mining Business Activities; and


·    Divestment regulated by Government Regulation No.20/1994 about Shares Ownership in Companies Established in the Framework of Foreign Investment. On the moment to clarify the regulation about divestment above, the Capital Investment Coordinating Board published the Regulation of the Investment Coordinating Board of Republic of Indonesia No.13/2017 about a Guidelines and Procedures of Licensing and Investment Facilities.

Based on Government Regulation No. 24/2012 on Amendment to Government Regulation No. 23/2010 about Foreign Investment (PMA) holders of Mining Business License (IUP) and Special Mining Business License (IUPK) must divest the shares gradually at least 51% to Indonesian participants . The divestment must be done after 5 (five) years until the 10 (tenth) years since IUP and IUPK are in production (could be seen in article 97 of Government Regulation No. 24/2012). The participants which belongs to Indonesian participants are the government, the provincial government, or the local government of the regency / municipality, the state-owned enterprise, the BUMD or the national private enterprise.


Government Regulation No. 24/2012 regulate the divestment stages for foreign investment holders of IUP and IUPK, that is:

1. Sixth year 20% (twenty percent);

2. Seventh year 30% (thirty percent);

3. The eighth year is 37% (thirty seven percent);

4. The ninth year 44% (forty four percent);

5. Year tenth 51% (fifty one percent).

There are several provisions which listed in Regulation of Foreign Investment Coordinator Board of Republic of Indonesia No.13/2017 (paragraph 5):


(1)          The Foreign Investment Companies has been established to divest its shares of the company which listed in approval letter and/or business license before the regulation of the board entry into force. The obligation of divestment is binding and should be done by the company in the period of time;


(2)          The companies which has the obligation to divest their shares should be convenient to the business sectors and the companies must be enforce the divestment regulationts based on its Indonesian legislations;


(3)          The divestment of shares of the companies contained in article (1) and (2) are executable to Indonesian Citizens or Indonesian Entities whose the shares of the company owned by Indonesian Citizens accordance to the agreement of the parties and/or domestic capital market shall be at least Rp10.000.000,- (ten million rupiah) for each shareholders;


(4)          The obligation of divestment as mentioned in article (1) and (2) are executable on the basis of documents of General Meeting of Shareholders which stated their agreement of the parties related to the enforcement of divestment obligations;


(5)          The Indonesian Participants ownership is the consequences of the divestment implementation, subsequent obtain the permit from the Ministry of Law and Human Rights could might be resold to individual Indonesian Citizens/individual foreign citizens/Indonesian entities/foreign entities with due regard comply to the related Indonesian legislations;


(6)          The obligation of divestment as mentioned in article (1) is executable in the case of the provision of the documents of General Meeting of the Shareholders:


a.      To the joint venture companies, Indonesian participants stated it would not suppose/sue the shares ownership in accordance with the divestment provisions which listed in approval letter and/or business license; or


b.      To the foreign investment companies whose the entire shares (100%) of the companies did not own commitment/agreement with any Indonesian participant to sold their shares.


(7)          In terms of the divestment obligation could not be executed as mentioned in article (6), if at a later time there would be an Indonesian parties sued the divestment obligation to be executed, that would be a responsibility for the entire shareholders/companies;


(8)          In terms of the divestment obligation as mentioned in article (1) and (2), companies have a right to appeal an Investment Registration in types of conversion registration to PTSP Center in BKPM, PTSP KPBPB, or PTSP KEK equitable to the competences; and


(9)          In terms of an agreement of shareholders as mentioned in article (6), companies have a right to appeal an Investment Registration in types of conversion registration equitable to the competences to rescind the divestment obligation.


The main focus of divestment legislations in Indonesia determined by the business sector of the companies, which then would be affected to the legislations could be apply to the related cases of  the divestment. There are several strict sanctions for the companies whose did not execute the divestment obligations, in a related article listed such as the retraction of a ownership license or administrative sanctions in terms of the holders did not perform the divestment obligation of the companies.


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