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Learn About Private Equity Financing for Indonesian Companies and Start Investing Today!
Private investments can serve as a way to obtain capital without pressures from public markets. One way to privately finance another company is through private equity financing, in which the investor will directly invest or even buy out the company. It is an easy way to obtain capital for the company, beneficial for entrepreneurs and startup companies that may not yet have the means to attract investments via the public market. Private equity financing is becoming increasingly widespread in Indonesia, and there is much to know. Learn about private equity financing for Indonesian companies and start investing today!
What is Private Equity Financing?
Let’s first establish what equity is. Assuming a company is worth one million USD, nine hundred thousand USD is loaned from a bank and shareholders or investors contribute the remaining one hundred USD. Adding them together, you get a total of one million USD. Assuming all liabilities or debts are settled, the leftover money is divided, and a percentage of this money is given to the shareholders as shareholder’s equity.
Private equity financing is much the same, but instead of shareholders who purchased stock from the public market, investors privately and directly invest in a company or buy them out, delisting the company of public equity. These two are known as venture capitals and leveraged buyout, respectively. The main advantage of this form of investment is that it allows companies to expand on their own with limited pressure from various public market fluctuations.
What Does Private Equity Financing Look Like in Indonesia?
Such investments can be made through a merger, acquisition or private investment in accordance with the various laws (Company Law for limited liability companies or Capital Market Law for public companies) on the matter. The type of laws and regulatory information is different depending on the type of company you invest in. Besides, investors must also refer to the Indonesian Financial Services Authority and their published regulatory information, such as the Indonesia Stock Exchange (IDX) Rules.
This form of investment is commonly used to fund startup businesses, and a lot of the emphasis lately has been on tech companies. Notable companies include ride-hailing company, GO-JEK and travel-booking company, Traveloka. Other private equity investment trends include an increased amount of investment in health technologies, renewable energy, food manufacturing, retail, media, financial services, and family-owned conglomerates.
It’s All About Structure
If you choose to invest, determining the relationship between investor and investee, finding the right tax structure and picking the right investment would be most prudent. To make an informed decision, it is crucial to examine factors such as exit possibility, the negative list, dividend repatriation and tax considerations.
Things You Should Know
The following are some details that may be of interest to you:
- You can sell your private equity to another private investor. There are no specific laws that govern private equity transactions unless the company is a public company.
- If you are a foreign investor, there are incentive schemes available provided you satisfy the various requirements. There are also negative lists by the government that dictates the maximum amount of ownership that is foreign is permitted in certain industries.