Indonesia Allows Stock Market Multiple Voting Rights to Lure Tech Listings

Indonesia’s OJK Regulation No. 22/POJK.04/2021 allows tech companies to have multiple voting rights when they conduct an initial public offering on the country’s stock exchange.

The new regulation enables founders or owners of tech companies to retain their control after conducting an IPO.

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Qualified shareholders in Indonesia in high-tech and innovative fields can now benefit from an expanded multiple voting share system as the government seeks to promote the country as a destination for initial public offerings (IPOs).

On December 1, 2021, Indonesia’s Financial Services Authority enacted OJK Regulation No. 22/POJK.04/2021, titled Implementation of Shares Classification with Multiple Voting Shares by Issuers Conducting Public Offering of Equity Securities in the Form of Shares with Innovation and High Growth Level. The regulation came into effect the following day, on December 2, 2021.

The regulation offers an incentive for tech and other innovative companies to set up in Indonesia and conduct IPOs there, as it allows owners to preserve their control after the company goes public.

Here, we look at what the multiple voting share regulation is, who qualifies for it, and what the requirements are.

Incentivizing tech and innovation

Multiple voting shares (MVS) are when one share grants more than one vote to the shareholder. Importantly, multiple voting shares can be used by the founders or owners of a company to retain decision-making control after conducting an IPO.

Without MVS, an IPO will generally follow the “one share, one vote” (OSOV) format, where each share carries one vote. In the context of an IPO, OSOV can “dilute” ownership of a company if the founders or owners do not retain a majority of shares, because the largest shareholders have the greatest voting rights.

In contrast, under an MVS scheme, the founders or owners of a company can retain effective control over a company even if they do not own the majority of shares, as long as they have enough MVSs. The ability to retain voting control after an IPO is especially important for tech startups and other innovative companies that are seeking the follow the founders’ long-term vision.

Who can issue multiple voting shares?

The regulation states the conditions companies must meet to be able to issue MVS in an IPO. Namely, issuers that conduct a Public Offering of Equity Securities in the form of shares may issue MVS as stipulated in their Articles of Association if:

• The issuer uses technology to create product innovations that increase productivity and economic growth and deliver extensive social benefits;
• The issuer has shareholders that provide significant contributions to the use of technology;
• The issuer has:
  • Minimum company assets of 2 trillion rupiah (US$134 million) based on the latest audited financial statements;
  • Been operational for at least three years before submitting its Registration Statement;
  • A compound annual growth rate of total assets of a minimum of 20 percent for the past three years based on the latest audited financial statements; and
  • A compound annual growth rate of revenue of a minimum of 30 percent for the past three years based on the latest audited financial statements.
• The Issuer has never conducted any Public Offering of Equity Securities; and
• Other criteria as determined by the Financial Services Authority.

While the regulation principally seeks to incentivize tech startups to conduct IPOs in Indonesia, the definition of companies that may qualify for issuing MVS is relatively broad. Accordingly, a range of different types of companies may qualify as long as they use technology, are innovative, and contribute to social and economic growth.

What are the rules on issuing multiple voting shares?

The regulation includes numerous stipulations on how MVS can be applied and transferred. Notable requirements are as follows:

• MVS shall be applicable for a maximum period of 10 years from the effective date of the Registration Statement for Public Offering and can be extended one time for a maximum of 10 years with the approval of the Independent Shareholders in the General Meeting of Shareholders.
• Each holder of MVS is prohibited from transferring part or all of their MVS for two years after the Registration Statement becomes effective.
• Each holder of shares before the Public Offering is prohibited from transferring part or all of their ordinary shares up to eight months after the Registration Statement becomes effective, if the book value per share in the latest financial statement is lower than the Public Offering price.
• Issuers with MVS are required to ensure that the voting rights of ordinary shares held by persons other than holders of MVS are at least 10 percent of the total voting rights.
• Holders of MVS, individually or collectively, are prohibited from owning either MVS or shares that would result in them having more than 90 percent of the total voting rights.

In addition to the above requirements, holders of MVS must meet various voting ratio requirements. The regulation further delineates what parties may hold MVS when MVS convert into regular shares and requirements for conducting IPOs and general meetings of shareholders.

Indonesia: A growing hub for tech startups

The latest regulation makes Indonesia a more attractive destination for tech startups and other innovative businesses by offering companies more flexibility in going public. The country’s startup scene is growing at a rapid pace, particularly for homegrown companies. Indonesia is home to eight unicorns as well as 20 percent of fintech companies in Asia.

Two of Indonesia’s biggest internet companies — ride-hailing and payments giant Gojek and e-commerce leader Tokopedia — merged to form GoTo, which was officially listed on the Indonesian Stock Exchange in April 2022, raising over US$1.1 billion. By the day’s end, GoTo’s market capitalization was valued at US$32 billion. The country’s digital economy is expected to have a gross merchandise value (GMV) of US$146 billion by 2025, making it the largest in Southeast Asia.

While Indonesia has its unique strengths, other countries in Southeast Asia, such as Singapore and Malaysia also offer their advantages for tech startups. Accordingly, tech startups may seek to undertake a comparative analysis to determine the relative advantages and disadvantages of setting up operations in different Southeast Asian countries.

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