Jurisdiction - Indonesia
Reports and Analysis
Indonesia – Borrowers (And Lenders) Beware.

18 November, 2014

 

 

Bank Indonesia has issued Bank Indonesia Regulation No. 16/20/PBI/2014 on the Implementation of Prudential Principles in Managing Offshore Borrowings by Non-Bank Corporations. The issuance of this regulation is prompted by a significant increase of offshore borrowings by Indonesian companies. At this time, private debts are greater than government debts.


Purpose


The purpose of this regulation is not to prohibit offshore borrowings. The regulation simply requires Indonesian companies who borrow offshore to fulfill three prudential criteria: (i) hedging ratio; (ii) liquidity ratio; and (iii) credit rating.

 

Three Prudential Criteria


The minimum hedging ratio is calculated as 25% of the negative difference between current assets1 and current liabilities2 (both are in foreign currencies) which will be due (i) within three months after the end of a quarter (31 March, 30 June, 30 September and 31 December) and (ii) between 3 months and 6 months after the end of a quarter. This ratio is applicable from 1 January 2016. From 1 January 2015 to 31 December 2015, the applicable ratio is only 20%. This is to provide companies time to make certain adjustments to comply with this regulation.


The minimum liquidity ratio is calculated that companies have current assets equal to 70% of their current liabilities which are due up to three months after the end of a quarter. This ratio is applicable from 1 January 2016. From 1 January to 31 December 2015, the applicable ratio is only 50 %.

 

The minimum credit rating must be maintained at BB or its equivalent from certain credit rating agencies that are listed in “http://www.ojk.go.id/surat-edaran-bank-indonesia-nomor-11-30-dpnp”. The type and period of the credit rating must always match the type and tenor of the offshore borrowings. The credit rating will only be applicable from 1 January 2016.

 

Exemptions


Trade related borrowings are exempted from the three prudential requirements. These offshore borrowings are exempted from the credit rating requirement: (i) refinancing borrowings; and (ii) offshore borrowings from bilateral and multilateral agencies (e.g. IFC, JBIC, JICA, ADB, IDB) which related to financings of infrastructure (e.g. transportation, road, irrigation, drinking water, sanitation, telecommunication and information, electricity and oil and gas).


Reporting Obligation


Under the regulation, there is no approval requirement. Borrowers must submit a report (together with supporting documents) to Bank Indonesia about their compliance with the prudential requirements. Bank Indonesia will monitor the compliance and if Bank Indonesia finds that a borrower is not in compliance with the three prudential criteria, it will apply an administrative sanction in the form of a warning letter. This sanction will only be applicable for reports starting from the third quarter of 2015.


The regulation does not specify any other sanction (e.g. monetary penalty) if a borrower ignores a warning letter. However, Bank Indonesia will inform (among others) the offshore lenders, tax office, the Financial Services Agency/OJK, the Indonesia Stock Exchange/IDX (for listed companies), the Minister of State-owned Enterprises (for state-owned companies) about the failure of the borrower to comply with the prudential criteria.


What’s Next?


Understandably there will be questions and permutations of specific cases which will need to be addressed. This regulation is a Bank Indonesia regulation (a PBI). If Bank Indonesia follows the past practice, it may soon issue a circular letter (a SE) which may have more explanations (as applicable).

 

End Notes:

 

e.g. cash, current accounts, saving accounts, time deposits, marketable securities and receivables originating from forward, swap and/or option transactions.


e.g. current liabilities and obligations from forward, swap and/or option transactions.

 

HHP_logo

 

For further information, please contact:

 

Erwandi Hendarta, Partner, Hadiputranto Hadinoto & Partners
erwandi.hendarta@bakernet.com


Mahardikha Sardjana, Hadiputranto Hadinoto & Partners
mahardikha.k.sardjana@bakernet.com


Johan Kurnia, Hadiputranto Hadinoto & Partners
johan.kurnia@bakernet.com


Ilham Fakhrur Raaziy, Hadiputranto Hadinoto & Partners
ilham.f.raaziy@bakernet.com

 

Hadiputranto Hadinoto & Partners Banking & Finance Practice Profile in Indonesia

 

Banking & Finance Law Firms in Indonesia 

Comments are closed.