Indonesia’s corruption laws cast shadow over Grab-GoTo merger

The potential merger between Grab and GoTo has once again hit a roadblock after a new report revealed that Telkomsel, one of GoTo’s shareholders, is unwilling to sell at current valuations. The telco, which is a state-owned enterprise (SOE), argues that it invested in GoTo unit Gojek at a much higher price.

Under Indonesian law, losses involving state capital can carry legal consequences. Telkomsel’s investment in Gojek is also under scrutiny, with the Attorney General’s Office reportedly beginning to question witnesses in the case related to the investment.

Image credit: Timmy Loen

Indonesia’s “state-loss” doctrine has long blurred the lines between a bad commercial bet and a loss to the state, exposing executives at SOEs to risk when investments turn sour.

This risk is reflected in the arrests of the CEO and former CEO of the state-owned VC firms MDI Ventures and BRI Ventures, respectively. They are accused of unlawfully approving investment funds for agritech startup TaniHub. Several members of their teams were also arrested.

The country updated the law last year to address some of the concerns about the state-loss doctrine, but old fears still linger.

Rules of the game

In Indonesia, it can be hard to tell where normal business risk ends and state loss begins. Previously, investment losses incurred by SOEs could be legally classified as losses to the state.

Telkomsel faces legal risk from its investments in Gojek of US$150 million in 2020 and US$300 million in 2021. In 2022, Gojek merged with Tokopedia under the GoTo entity and listed on the Indonesian stock exchange.

Telkomsel’s stake in GoTo stands at 2%. Although relatively small, Grab reportedly wants to ensure that all Indonesian stakeholders agree to its acquisition proposal, as the deal would require approval from the Indonesian government.

The Attorney General’s Office is conducting an investigation into Telkomsel’s investments. The probe is based on allegations of a lack of good corporate governance because Gojek had not yet turned a profit at the time. Potential conflicts of interest have also come under scrutiny.

Abdul Fickar Hadjar, a criminal law expert from Trisakti University, notes that Indonesia’s prevailing corruption eradication law allowed prosecutions when actions benefited individuals or corporations and resulted in losses to the state.

Originally designed to protect public assets, the rules have become viewed as a source of legal uncertainty, especially when applied to commercial decisions made under normal business risk.

National Monument in Jakarta, Indonesia / Photo credit: Wahyu Nur Fahrurozi / Shutterstock

Uncertainty in practice

From boardroom to courtroom

Jitters over legislation