Government urged to draft law on cross ownership

Government urged to draft law on cross ownership

JAKARTA (JP): The government should draft a new law to
regulate cross shareholding through corporate restructuring,
which has become a trend among conglomerates, lawyer Sofyan A.
Djalil suggested.

Sofyan, managing partner at Sofyan Djalil & Partners law firm,
said the recent cross shareholders-driven restructuring by the
Salim and Lippo groups should encourage the government to
regulate such practices.

He acknowledged that the recent restructuring conducted by the
two giants did create synergy and benefit both majority and
minority shareholders.

"But it is not free from public suspicion. Some people
consider it as unethical. And in the absence of adequate legal
basis, there is no mechanism for the public to prevent such
practices," Sofyan said.

Last year, the Lippo Group restructured its financial-related
firms, which included PT Lippo Securities, PT Lippo Life and PT
Lippo Bank.

The restructuring initially sparked controversy as it involved
cross ownership and mutual holding practices and was to be
financed by public funds through the issuing of rights.

But the Lippo Group succeeded in its restructuring plan after
the Riady family avoided cross shareholding.

The Riady family sold its shares in Lippo Bank to Lippo
Insurance and then sold its shares in Lippo Insurance to Lippo
Securities. Lippo Securities issued rights shares to finance the
acquisition.

After restructuring, the Riady family still controls Lippo
Bank and Lippo Insurance through Lippo Securities, in which it
owns 37.44 percent stake.

And earlier this month, minority shareholders approved PT
Indocement Tunggal Prakarsa's plan to spin-off and sell all of
its 50.1 percent ownership in PT Indofood Sukses Makmur to focus
on its cement business. Both firms are under the Salim Group.

The Salim Group intends to proceed with the second stage in
its restructuring plan, selling Indofood's shares to the group's
foodstuff listed-firm QAF Ltd of Singapore.

This will give the Singaporean company a 50.1 percent stake in
Indofood. QAF intends to issue rights shares to fund the
acquisition.

The chairman of the Capital Market Supervisory Agency, I Gede
Putu Ary Suta, said his agency could not prevent Salim's
restructuring plan as it did not deviate from any existing
regulation.

Sofyan said the absence of an antitrust law in Indonesia had
made it possible for majority shareholders to take whatever
decision on even a publicly listed corporation, Sofyan said.

"In the absence of an antitrust law, any kind of restructuring
is basically legal. This, of course, could create unfair
competition and punish consumers," Sofyan said.

He acknowledged that Indonesia had already governed cross
shareholding, albeit in an obscure manner, through the 1995
Company Law and several rulings issued by the Capital Market
Supervisory Agency.

The law says the supreme authority in a corporation should lie
with a shareholders meeting. This gives majority shareholders
enough room to exert their authority for their own benefit.

But the law also gives minority shareholders the right to sue
the company or demand the company buy back their shares at
reasonable prices if their interests are not accommodated.

The Capital Market Supervisory Agency also requires publicly
listed firms to ask for the approval of minority shareholders
whenever restructuring carries a conflict of interests. (rid)