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)