Foreign Investment in Telecommunication Tower Business

Pursuant to Regulation of Ministry of Information and Communication, construction of telecommunication tower may be performed by (i) telecommunication operator; (ii) tower provider or; (iii) tower contractor/developer. Unless it is performed by a telecommunication operator, which business is allowed to have 65% of foreign ownership, construction service provider building tower for special purpose is closed for foreign investment. Moreover, tower provider, operator or tower developer is allocated for Indonesian companies/domestic investment.

Further, the Joint Ministerial Regulation between Minister of Interior, Minister of Public Work, Minister of Communication and Information and the Head of Indonesian Investment Coordinating Board also stating that telecommunication tower provider/operator/developer that is not a telecommunication operator, must be owned 100% by Indonesian entities. This is in line with the Investment Negative List which states that business of providing, operating (including leasing) and construction service provider for telecommunication tower which includes the activity of construction, maintenance and reparation the central telecommunication tower and its equipment i.e., central telephone, telegraph, BTS, micro wave receiver, satellite, fixed network for local and long distance telecommunication is closed to foreign investment and it is allocated for national companies. Joint Ministerial Regulation states that national company is an entity in a form of corporation or non corporation whereas the capital is entirely from domestic investment and incorporated in Indonesia.

The Investment Law defines domestic capital as capital that is owned by the State of the Republic of Indonesia, an Indonesian national, or a business entity, whether it is formed as a legal entity or a non-legal entity. Opposite to domestic capital, foreign capital is defined as capital that is owned by a foreign state, a foreign national, a foreign business entity, a foreign legal entity, and/or an Indonesian legal entity, of which the capital is in part or in whole is owned by a foreign party (i.e., PMA).

A direct investment or acquisition by PMA will be categorized as foreign investment due to the origin of the capital and PMA status as a foreign investment company. Given the foreign ownership restriction in telecommunication tower business, PMA is prohibited from directly investing in a telecommunication tower company.

Nevertheless, Investment Negative List states that restrictions in foreign investment as mentioned in the regulation will not be imposed to indirect investment or portfolio transaction through the Indonesian stock exchange. A publicly listed company is not bound by requirement imposed by the Investment Negative List.

By definition, a public company is a limited liability company owned by at least 300 (three hundred) shareholders and have Rp. 3.000.000.000,00 (three billion Indonesian Rupiah) as the paid up capital, unless otherwise regulated by a government regulation. One way to become a public company is through an initial public offering (“IPO”) to sell shares of stock to public according to the Capital Market Law and its supporting regulation, and under the supervision of Badan Pengawas Pasar Modal/Capital Market Supervisory Board (“Bapepam”). IPO is opted when companies need to raise capital or expand their current business, especially when there are restrictions in foreign investment regulations that limit these companies to expand their business.

Based on the above explanations, there are few feasible ways to invest or acquire shares in telecommunication tower company i.e.:

a. Acquiring some shares in telecommunication operator (network provider);

Pursuant to Negative List, foreign ownership in telecommunication operator company (privately held) is allowed up to 65%. In the event the telecommunication company is a publicly listed company, the limitation does not apply.

b. IPO;
c. Acquiring shares of stock of existing listed telecommunication tower company;
d. Acquiring shares of stock of existing listed company and incorporate telecommunication tower business into its license.

Albeit the restriction of foreign investment in telecommunication tower business, a partnership between foreign entity and Indonesian entity; particularly in developing and construction of new tower, is allowed and supported by the government although there is no specific regulation governing it other than Investment Negative List. However this form would not favor foreign investor given they are not able to hold ownership in their Indonesian partner company.

Author:

Marini Sulaeman
Managing Partner – m.sulaeman@legisperitus.co.id

Alamo D. Laiman
Partner – a.laiman@legisperitus.co.id

 



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