WWW.ICLG.CO.UK CLG TO: LENDING AND SECURED FINANCE 2013 Chapter Ali Budiardjo Nugroho Reksodiputro Indonesia 1 Overview 1.1 What are the main trend s/signifi cant deve lopmen ts in the lending markets in Indonesia? Currency law The regulations on transaction settlement payments and the collection of export proceeds have been revised under Law No. 7 of2011 on currenc y (Currency Law). The Curren cy Law: (i) reconfirms the Rupiah as the legal and official tender of the Republic of Indonesia; (ii) deals with the requirements for the issuance, printing and minting of Rupiah bank notes and coins; and (iii) regulates the use of the Rupiah to settle transactions and provides that the Rupiah must be used in certain transactions conducted with in Indonesia. These provision s have given rise to interpretation al issues. International payments ar e not af fected provided th ey relate to trade a nd financing . Payments betwee n two domestic parties must be made in Rupiah even if they relate to trade and finance. However, the Minister of Finance has recently made a presentation which clarified that the requirement to use Rupiah is limited to cash pay ments. Payments mad e using wire transf er orbanking instruments such as letters of credit need not be made in Rupiah. In addition, parties (includ ing domestic parties) can waive the requirement to use Ru piah by agre ement. Please note this presentation is no t a formal regu lation, and may n ot be followed b y the Indonesian courts; in practice, the risk of prosecution is low and the market appears to have accepted the flexibility offered by the Minister. External debt and export proceeds Regulation Nos. 13/20/PBI/2011 (Regulation 20) and 13/22/PBI/2011 (Regulation 22) came into force on 2 January 2012. They aim to both: (i) stabilise exchange rate volatility caused by instability in the supply of foreign currency to the domestic market; and (ii) create a reporting system that will enable the collection ofimportant financial data. Under Regulation 20, all drawdowns ofexternal debt (that is, debt owed by a resident debtor to a non- resident creditor and denominated in any currency other than Indonesian Rupiah) must be made through a Foreign Exchange Bank. Drawdowns under loan agreements signed before 2 January 2012 will not be subject to the new Regulations, but if the principal amount of the loan is subsequently increased, any increase will be subject to Regulation 20. Export proceeds and the effect on security Regulation 20 also stipulates that all resident exporters must collect foreign exchange export proceeds through a Foreign Exchange Bank rather than into an offshore account. Where there is an agreement not to receive export proceeds through a Foreign Exchange Bank or a payment obligation of the exporter dated before 2 January 2012, export proceeds need not be received through a Foreign Exchange Bank until 2 January 2013. Furtherconfirmation from Bank Indonesia is required to confirm the timing of the subsequent sweep and the legality of this practical solution generally. 1.2 What are some sig nif icant lending tran sactions tha t have taken place in Indonesia in recent years? There are plenty of significant transactions in Indonesia in recent years, among others, the issuance of bonds by the Indonesian state- owned company energy giant PT Pertamina (Persero) in 2012 worth US$ 2.5 billion and this was considered the largest Asi an debt issue in the US market. The US$ 2.5 billion senior unsecured bond offering was made in two tranches – a US$ 1.25 ten-year bond bearing a 4.875 percent coupon rate and a US$ 1.25 billion 30-year bond with 6 percent coupon. The offe ring was at least th ree times oversu bscribed. Earlier reports indicated that Pertamina initially expected to raise more than US$ 2 billion from the offering. In this deal, ABNRacted as Indonesian counsel to Pertamina together with a reputable US law firm as their international counsel. The demand for the offering continued a trend of high demand among investors for long -term Asian deb t. Another examp le is the US$ 500 million tranche of 30-year bonds offered by the Chinese National Offshore Oil Company (CNOOC) which was close to 20 times oversubscribed, with investor orders in the range of US$ 9.8 billion. 2 Guarantees 2.1 Can a compan y guarantee b orr owi ngs o f one or mo re other members of its corporate group see below for questions relating to fraudulent transfer/financial assistance)? Yes, a company guarantee is commonly acceptable in financing practice. 2.2 Are the re enforceabi lit y or other concer ns such as director liability) if only a disproportionately small or no) benefit to the guaranteeing/securing company can be shown? Under Indonesian law, the validity of a legal act performed by an Ayik Candrawulan Gunadi Theodoor Bakker
