The recent Regulation No. 12/1/PBI/2010 on Foreign Loans for Non-Bank Companies issued by Bank Indonesia (effective as from 28 January 2010) (the “
Regulation”) relaxes the central bank conditions for non-bank companies to obtain foreign loans. In particular, the Regulation excludes certain categories of companies from the requirement to maintain a credit rating.
The Regulation replaced a previous regulation passed in 2008, which included a requirement that all non-bank companies that obtain foreign loans and which have assets of more than Rp. 100 billion (about US$11 million) must have in place a credit rating from a recognised credit rating agency.
This requirement was clearly impractical in the case of many borrowers and was frequently ignored in practice. Many offshore lenders continued to lend to unrated borrowers, however the existence of the requirement was a cause for concern. Indonesian case law contains examples of offshore loans being held unenforceable due to failure to comply with Bank Indonesia regulations (
European Asian Bank v. Tegoeh Soetantyo and
The Chartered Bank v. Lim Poh Hock) although later Supreme Court decisions (
Marubeni Corporation v. PT Indokaya Nissan Motors and
Bank of America v. PT Starlight Prim Thermoplas) held that failure to comply with Bank Indonesia regulation resulted in administrative sanctions for the borrower only.
Indonesia does not follow a strict doctrine of precedent and it is certainly arguable that an Indonesian court could hold a loan agreement unenforceable due to failure to comply with Bank Indonesia requirements, even if many Indonesian practitioners would say that this is more likely to result in administrative sanctions only.
The good news is that under Article 5(2) of the new 2010 regulation, this requirement no longer extends to companies which have yet to obtain a credit rating. This effectively makes it considerably easier for newly incorporated companies to obtain long-term foreign loans.
The new Regulation also reduced the notification requirements imposed on non-bank companies. Similar to the requirements under the 2008 regulation, non-bank companies continue to be required to submit a notification to Bank Indonesia of an intention to obtain a foreign loan with a maturity longer than one year. This notification must include an annual foreign-sourced loan plan setting out how the funds will be put to use, balance sheets, financial reports and (if there is a rating history) the company’s credit rating. There is also a continuing notification requirement to be complied with by 10 March each year. With respect to loans of less than a year, the debtor company is only required to submit its balance sheet and financial reports, and does not require submission of an annual foreign-sourced loan plan or credit rating - notification is to be made semi-annually by 10 June and 10 December each year.
As with the previous regulations, we recommend that these requirements be set out expressly in offshore loan agreements with Indonesian borrowers together with its reporting obligations to the Indonesian Ministry of Finance Team for Offshore Commercial Loans.
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