Dual-class shares — or two classes of shares with different voting rights issued by the same company — may be moving closer to reality in Indonesia.
Indonesia’s Financial Services Authority (OJK) has prepared a draft regulation that may permit the issuance of shares with multiple voting rights (MVR), show details published on the regulator’s website.
The move is aimed at wooing more tech giants to list on the domestic bourse (IDX) instead of pursuing IPOs on foreign exchanges, such as in the US, where listed companies can issue dual-class shares.
Many of Indonesia’s unicorns are currently weighing IPO plans. While e-commerce marketplace Bukalapak is said to be working on an up to $800 million domestic IPO by August, GoTo has already expressed interest in a dual listing in Indonesia and the US this year.
Criteria to issue MVR shares
According to the draft regulation, which runs into 34 chapters, companies that wish to issue dual-class shares must meet certain criteria.
The total assets of the company must be at least 2 trillion rupiah ($138.89 million) and the business must have been operational for a minimum of three years. The compound annual growth rate (CAGR) of total assets and income for the three years preceding the issue of MVR shares should be at least 35% and 30%, respectively.
The company must also have never made a public offering of equities before, according to the draft of the regulation on OJK’s website.
Chapter 4 of the draft states that the company issuing MVR shares must clearly state:
- The name of the party that owns the MVR shares.
- The parties who can become shareholders with MVR shares.
- Provisions on the ratio of the voting rights of ordinary shares to the voting rights of MVR shares.
- Requirements regarding MVR shares that have voting rights equivalent to ordinary shares, in specific agendas during shareholder general meetings.
Chapter 5 of the draft regulation states that each shareholder with multiple voting rights (MVR) is prohibited from shifting part or all of the ownership of such shares for up to two years after the registration statement.
Chapter 6 states that shareholders with MVR, either individually or collectively, can only own up to 47.3% of all shares. If they own more than 47.3% of total shares, the excess MVR shares will be considered as common stock.
Chapter 7 lays down the conditions regarding the ratio of voting rights of ordinary shares to MVR shares:
- If the ownership of shares with MVR is above 10% and below 47.3% of the total shares issued, the ratio of voting rights of ordinary shares to shares with MVR should be 1:10.
- If the ownership of shares with MVR is between 5% and 10% of the total shares issued, the ratio of voting rights of ordinary shares to shares with MVR should be 1:20.
- If the ownership of shares with MVR is between 3.5% and 5% of the total shares issued, the ratio of voting rights of ordinary shares to shares with MVR is 1:30.
- If the ownership of shares with MVR is between 2.5% and 3.5% of the total issued shares, the ratio of voting rights of ordinary shares to shares with MVR can be 1:40.
The party that owns shares with MVR must be designated as a shareholder with MVR and must be included in the statute before the IPO. The party either individually, or collectively, must have voting rights of more than 50%.
Parties that can own shares with MVR must also gain approval from independent shareholders.
Chapter 19 dwells on raising capital through a rights issue and states that if the investors with no MVR inject more funds, the new shares will be common stocks.
During fundraising through private placement, the new shares through private placement must be common stocks. To maintain the ownership of MVR shares so that they have at least 50% of voting rights, the shareholders with MVR could participate in fundraising through private placement.
The company must ensure that ordinary shares have at least 10% of overall voting rights. Each corporate action is prohibited from causing the voting rights of common stocks to be less than 10% of the total voting rights.
“As it is still a draft regulation, it is still possible to change the clauses and contents of the regulation. The draft is still open to the public, especially capital market stakeholders until June 21, 2021,” said IDX director I Gede Nyoman Yetna.
Globally, tech giants like Google and Facebook have listed dual-class shares to maintain the autonomy of their founders even when their shareholding is less than other investors.
Meanwhile, in Asia, the Hong Kong Stock Exchange and Singapore Stock Exchange allowed companies to list dual-class shares in 2018. China’s Shenzhen Stock Exchange allowed the same in 2020.
By implementing a dual-class share structure, the IDX can compete and level the game up with other stock exchanges, Nathaniel Mangunsong, managing partner at Adrem Law Firm, had told DealStreetAsia in February.