Thursday, 24 July 2008

Non-bank companies’ foreign loans

Bank Indonesia, the national central bank, recently issued its Regulation No. 10/7/PBI/2008 regarding Foreign Loans of Non-Bank Companies (the “Regulation”). The Regulation states as the consideration of its enactment the central bank’s anticipation of the growing amount of inflow of foreign loans into the country and its need to minimize this phenomenon’s negative impact. The Regulation imposes a reporting requirement as well as the obligation to apply the prudential principle on non-bank companies that obtained foreign loans. The foreign loans that have to be reported to Bank Indonesia comprise all types of loans either in terms of the maturity or the securities used to procure the loans, hence they include ordinary bank loans, loans that use securities as the instrument of the issuance irrespective of whether the issuance is through private placement or public offering, and domestic debt notes issued in a foreign currency.Of the most important provisions of the Regulation is the requirement for these companies to obtain a debt rating before they obtain a long term loan. The rating must then be reported to Bank Indonesia, which report must include the company’s financial ratio, financial report, and an analysis by the management of the company’s risks.The Regulation came into effect on 19 February 2008, which was the date of its issue.

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