Regulation of Bank Indonesia No. 16/20/PBI/2014 of the Year 2014 - The Implementation of the Prudential Principles in the Management of Non-Bank Corporate Foreign Debt
James Purba
From: Tumbuan & Partners [mailto:gen...@tumbuanpartners.com]
Regulation of Bank Indonesia No. 16/20/PBI/2014 of the Year 2014
concerning
The Implementation of the Prudential Principles in the Management of Non-Bank Corporate Foreign Debt
On 28 October 2014, Bank Indonesia (“BI”) issued Regulation No. 16/20/PBI/2014 of the Year 2014 (“PBI No. 16/20/PBI/2014”) concerning the Implementation of the Prudential Principles in the Management of Non-Bank Corporate Foreign Debt.
Foreign Debt is one of sources of financing the domestic economy. The Foreign Debt, particularly which are incurred by the Non-Bank Corporations need to be well managed by the Non-Bank Corporations in order to provide an optimal contribution for the national economy and so as not to cause interference in the macroeconomic stability. To achieve those purposes, the management of the Foreign Debt must be done with due observance of the prudential principles in order to mitigate any risks which may arise, including currency risk, liquidity risk and overleverage risk.
Non-Bank Corporations which have Foreign Debt denominated in foreign currency are required to implement the prudential principles. The prudential principles include the compliance with:
1. Hedging Ratio
Non-Bank Corporations have to comply with certain minimum Hedging Ratio by conducting Hedging vis-a-vis IDR in the amount of 25% of:
a) The negative difference between Foreign Currency Assets against Foreign Currency Liabilities, which will mature up to three months from the end of the quarter;
b) The negative difference between Foreign Currency Assets against Foreign Currency Liabilities, which will mature over three months to six months from the end of the quarter;
2. Liquidity Ratio
Non-Bank Corporations have to comply with certain minimum Foreign Currency Liquidity Ratio in the amount of 70% by providing sufficient Foreign Currency Assets against Foreign Currency Liabilities which will mature up to three months from the end of the quarter; and
3. Credit Rating
Non-Bank Corporations have to comply with Credit Rating at least equal to BB from an accredited Indonesian rating agency which is recognized by the appropriate authorities.
For the period of 1 January 2015 to 31 December 2015, the Foreign Currency Hedging Ratio and Foreign Currency Liquidity Ratio are set respectively in the amount of 20% and 50%. It is intended to provide opportunities for the Non-Bank Corporations to make adjustments in risks management, including the availability of the hedging instruments.
Provision regarding the compliance with the Credit Rating is applicable for Foreign Debt which signed or issued since 1 January 2016.
There are exceptions in this regulation as follows:
1. The obligation to comply with the prudential principles is excluded for Foreign Debt in Foreign Currency in the form of Trade Credit;
2. The obligation to comply with the minimum requirements of Credit Rating is excluded for:
a) Foreign Debt denominated in a Foreign Currency which is refinancing activity; and
b) Foreign Debt denominated in a Foreign Currency from a bilateral/multilateral international institution creditor in connection with infrastructure projects fundings.
Non-Bank Corporations are required to submit report and supporting documents concerning the implementation of the prudential principles and the exception which are set out in this regulation to BI.
Violation of the obligation to comply with the prudential principles will be subjected to administrative sanction in the form of written warning containing the information regarding the imposition of the sanction which will be notified by BI to the related parties as follows:
1. The relevant foreign creditor(s);
2. State Ministry of State-Owned Enterprises of the Republic of Indonesia for state owned enterprises;
3. Ministry of Finance of the Republic of Indonesia c.q. Directorate General for Taxation;
4. Financial Services Authority (Otoritas Jasa Keuangan-“OJK”);
5. Indonesia Stock Exchange (Bursa Efek Indonesia-“BEI”) for public corporations which are listed in BEI.
The provisions regarding sanctions will be effective as of the third quarter report of the year 2015.
This BI regulation comes into effect on 1 January 2015.
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