Change on Law Regarding Material Transaction

1 Nov 2011

am back again folks! Just to report that I have just noticed from the Capital market supervisory agency portal and learned that there is a new draft law being processed right now. The draft regulation will superseed the existing rule IX.E.2 on material transaction. Took a quick look at the new draft rule and it seems an improvement from the existing one - although i think the wording of the draft rule must need to be refined as some of the sections especially on the para 4 (e) and (f) regarding the details of the disclosure was not very clear.

Some of the improvement that can be reported here is taht existing rule on material transaction requires listed companies intending to issue securities to conduct EGM with detailed disclosures including the name of the underwriters, selling price, size, the object and parties involved in the deal. The problem with this is that in many cases, at the point of the EGM many corporates may not know exactly some of this information including the name of the underwriters and the terms of the transaction yet. This renders some difficulties to the corporate that intend to issue such securities.

This draft regulation if published as it is will allow the corporates to conduct the EGM without first knowing all the specifics or details of the transaction including the name of the standby buyer(s) or the size of the deal. New information can be added or revised after the EGM is conducted.

The draft regulation also allows for non-disclosure of certain information if the issuance of the securities is related to debt securities offered to the QIBs via public offering in the international market. The non-disclosure items include the parties involved in the securities, the size of the deal, coupon rate and the requirement to have third party appraiser of the transaction.

Another thing that is made clear on this new piece of rule is that direct lending to corporates from local or foreign banks or financial institutions will be exempted from being considered as material transaction. Exemption from the rule is also given to those companies conducting material transaction under a restructuring process so long as those company suffers from negative working capital or negative equity. Banks which are currently being assisted or under a lending program by central bank or other government owned financial institutions which lending amount exceeds 100% of the equity of the corresponding bank or in any event that such a bank is currently under certain restructuring process will also be exempted from this rule.

there are some other changes include the definition of sale of shares that can be classified as material transaction. The type of sale of shares that falls under this category is the sale of shares due to a divestment process and not other type of sale of shares. The definition of main busiiness activity of a company has also been subject to many interpretation and corporates tries to link whatever businesses they have as their main business activity and thus avoid the rule. In this new regulation, the authority tries to define it further by stating that the MAIN businesses are only those businesses that are DIRECTLY operated by the company. Am not sure whether it makes things clearer on this one. Anyway, at least we have some clarity on other matters.

So, thats all for now. hope the above makes sense. Anyway, lets discuss if there is any concern.

Always

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