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Debt capital markets in Indonesia: regulatory overview

by Putu Suryastuti and Mohammad Renaldi Zulkarnain, Assegaf Hamzah & Partners

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A Q&A guide to debt capital markets law in Indonesia.

The Q&A gives an overview of legislative restrictions on selling debt securities, market activity and deals, structuring a debt securities issue, main debt
capital markets/exchanges, listing debt securities, continuing obligations, advisers and documents, debt prospectus/main offering document,
timetables, tax, clearing and settlement, and reform.

To compare answers across multiple jurisdictions, visit the debt capital markets Country Q&A tool.

This Q&A is part of the global guide to debt capital markets law. For a full list of jurisdictional Q&As visit www.practicallaw.com/debtcapitalmarkets-
guide.

Legislative restrictions on selling debt securities

1. What are the main restrictions on offering and selling debt securities in your jurisdiction?
Main restrictions on offering and selling debt securities

A security offering that does not meet the criteria for public offering (known as private placement) is exempted from the obligation to submit registration
statements to the Financial Services Authority (Otoritas Jasa Keuangan) (OJK). Therefore, it is exempted from all offering requirements under OJK
(formerly Bapepam-LK) rules. The offering is subject to submitting registration statements to the OJK if any of the following apply:

The offering is made within the jurisdiction of Indonesia.

The offering is offered to Indonesian citizens through the mass media.

The offering is offered to more than 100 parties.

The offering is sold to more than 50 parties in a specified limited amount within a specified time.

Restrictions on offers to the public or professional investors

Indonesia does not have specific regulations for public or professional investors.

Market activity and deals

2. Outline the main market activity and deals in your jurisdiction in the past year.

According to the Indonesian Financial Services Authority (Otoritas Jasa Keuangan) (OJK) Capital Markets Statistics, the transaction volume for 2015
in conventional, sharia, and corporate sukuk bonds markets, including asset-backed securities, amounted to IDR249.00 trillion, reflecting a growth of
10.86% compared to the 2014 volume of IDR224.61 trillion. In 2015, the transaction frequency reached 20,744 transactions, and declined by 6.36%
compared to 2014 at 22,153 transactions.

Regarding bonds and sukuk, the number of new issuance of corporate bonds and sukuk and asset-backed securities amounted to 44 issues, and
increased by 25.71% from the previous year which had 35 issues.

Structuring a debt securities issue

3. Are different structures used for debt securities issues to the public (retail issues) and issues to professional investors
(wholesale issues)?

The structures used for debt securities issues to the public (retail issues) are the same as the structures used for debt securities issues to professional
investors. Indonesia does not have specific instructions for these types of investors.

4. Are trust structures used for issues of debt securities in your jurisdiction? If not, what are the main ways of structuring
issues of debt securities in the debt capital markets/exchanges?

In Indonesia, Law No 8 of 1995 on Capital Markets (Indonesian Capital Markets Law) provides for the concept of trusteeship for debt securities where
the trustee acts on behalf of and in the interest of bondholders. The trustee represents the bondholders' interests. The trustee, on behalf of the
bondholder, enters into trustee agreements (perjanjian perwaliamanatan) that set out the covenants and obligations of the issuer.

Main debt capital markets/exchanges

5. What are the main debt securities markets/exchanges in your jurisdiction (including any exchange-regulated market or
multi-lateral trading facility (MTF))?

Main debt markets/exchanges

The Indonesia Stock Exchange (IDX) (www.idx.co.id) is the only main debt securities market/exchange in Indonesia where trading in debt securities is
conducted. It is the sole securities market in Indonesia.

Approximate total issuance on each market

According to the IDX Fact Book 2014, in the first quarter of 2014, there were 16 bonds issuance listed on the IDX.

6. What legislation applies to the debt securities markets/exchanges in your jurisdiction? Who are the main regulators of
the debt capital markets?

Regulatory bodies

The regulatory bodies are the same as for equity markets (see Equity Capital Markets in Indonesia, Question 2, Regulatory bodies), namely the:

Financial Services Authority (OJK).

Indonesia Stock Exchange (IDX).

If the issuer issues foreign debt securities, the issuer must also comply with regulations provided by the Ministry of Finance and Bank Indonesia.

Legislative framework

The legislative framework is the same as for equity markets (see Equity Capital Markets in Indonesia, Question 2, Legislative framework).

Listing debt securities

7. What are the main listing requirements for bonds and notes issued under programmes?

Main requirements

To list debt securities on the Indonesia Stock Exchange (IDX), the issuer must fulfil the following requirements, among others:

A limited liability status for the company.

In operation for at least three years.

Have at least IDR20 billion in equity.

Have realised a profit in the last year.

Have a registration statement declared effective by the Financial Services Authority (OJK).

Produce financial statements for the last three years with unqualified opinions from an auditor registered with the OJK.

Have at least a BBB- (investment grade) rating from a rating agency registered by the OJK.

The same requirements apply to foreign companies that issue debt securities as for Indonesian issuers. The main types of debt securities are
corporate and government bonds.

Minimum size requirements

There are no minimum size requirements for bonds issuance.

Trading record and accounts

The trading record and accounts for debt securities is the same as for an equity offering (see Equity Capital Markets in Indonesia, Question 3).

Minimum denomination

The minimum denomination for Bank Indonesia certificate (SBI), government debt securities (GS), and corporate bonds are set out as follows:

Bank Indonesia certificate (SBI). IDR1 billion increments, IDR100 million and IDR1 million (in the secondary market).

Government debt securities (GS). Regular GS IDR1 billion increments of IDR100 million and IDR1 million (in the secondary market) and retail
GS IDR5 million Increments of IDR5 million (in the primary market) and IDR1 million (in the secondary market).
 Corporate bonds. For corporate bonds, the minimum denomination depends on the company.

8. Are there different/additional listing requirements for other types of securities?

There are no different or additional listing requirements for convertible bonds, depository receipts and warrants.

Continuing obligations: debt securities

9. What are the main areas of continuing obligations applicable to companies with listed debt securities and the legislation
that applies?

An issuer of debt securities is subject to the Indonesian Capital Markets Law and its regulations as follows:

OJK Regulation No 31/POJK.04/2015 on Disclosure Information that Must Be Immediately Announced to the Public. Under this regulation,
the issuer of debt securities is obliged to declare to the Financial Services Authority (OJK) and announce to the public no later than two business
days after the surfacing of or occurrence leading to any material information or fact that may affect the value of the company's stock or investment
decisions.

Regulation No X.K.2, Appendix to Chairman of Bapepam-LK No KEP-346/BL/2011 on the Submission of Periodical Financial Statement
of the Issuer or Public Company. Under this regulation, the issuer of debt securities is obliged to submit annual and semi-annual financial
statements to the OJK in both hard and soft copies.

OJK Regulation No 30/POJK.04/2015 on the Report on the Use of Proceeds from Public Offering. Under this regulation, the issuer of debt
securities is obliged to submit a report of realisation on the use of proceeds from public offering to the OJK semi-annually. In addition to that, the
issuer of debt securities must also report its use of proceeds from the public offering at the annual general meeting of shareholders and/or
submitted to the trustee.

Regulation No X.K.6, Appendix to Chairman of Bapepam-LK No. KEP-431/BL/2012 on the Submission of Annual Financial Statement of
the Issuer or Public Company. Under this regulation, the issuer of debt securities is obliged to submit an annual report to the OJK no later than
four months after the end of the financial year.

Under new OJK regulations, the annual report must also include:

a charter that binds each member of the board of directors (BOD) and board of commissioners (BOC) of the issuer (OJK Regulation No
33/POJK.04/2014);

a report to the OJK on the appointment or termination of their corporate secretary, the implementation of the corporate secretary function and
training (OJK Regulation No 35/POJK.04/2014); and

a statement, with regards to the nomination and remuneration committees, that it has established committee guidelines that are in
accordance with OJK Regulation No 34/POJK.04/2014, and a brief explanation of the committee's duties and responsibilities in the financial
year.

If the company does not establish nomination and remuneration committees, it must disclose the information in its annual report and website,
stating, at least:

the reasons for not establishing the committees; and

an explanation of the implementation of the nomination and remuneration functions by the BOC in the financial year.

An issuer of sharia compliant debt securities (that is, sukuk) is subject to the Indonesian Capital Markets Law and its regulations. Under OJK
Regulation No 18/POJK.04/20015 on the Issuance and Requirements of Sukuk, the underlying transaction and underlying assets for the purpose of
the sharia structure need to be in compliance with sharia principles. The same also applies for the use of proceeds of sukuk issuance.

10. Do the continuing obligations apply to foreign companies with listed debt securities?

The continuing obligations also apply to foreign companies that issue debt securities through public offering and list debt securities in Indonesia.
 11. What are the penalties for breaching the continuing obligations?

Under the Indonesian Capital Markets Law, the Financial Services Authority (OJK) can impose administrative sanctions in the form of written warnings,
fines, or the cancellation of licences.

Advisers and documents: debt securities issue

12. Outline the role of advisers used and main documents produced when issuing and listing debt securities.

Generally, the role of advisers and the main documents produced when issuing and listing debt securities are the same as in the case of an equity
offering (see Equity Capital Markets in Indonesia, Question 9). In addition, a trustee agreement and deed acknowledgment of indebtedness are also
prepared, as well as security documents if the bonds are secured.

13. When is a prospectus (or other main offering document) required? What are the main publication/delivery
requirements?

A prospectus is required when securities are offered to more than 100 investors, or purchased by more than 50. The main publication/delivery
requirements are the same as for an equity offering (see Equity Capital Markets in Indonesia, Question 10).

14. Are there any exemptions from the requirements for publication/delivery of a prospectus (or other main offering
document)?

The exemptions are the same as for an equity offering (see Equity Capital Markets in Indonesia, Question 11).

15. What are the main content/disclosure requirements for a prospectus (or other main offering document)? What main
categories of information are included?

In addition to information on the issuer, the prospectus for a debt offering must also include information on the debt to be issued, covenants, and the
schedule for principal and interest payments.

Additionally, prospectus issued relating to offerings in foreign currency must include the following information:

Applicable exchange rate at the time the debt securities are offered.

Risk factors relating to exchange rate ratio.

Information on hedging.

Information on the company's reserve funds to repay investors.

Information on company's revenue in rupiah and relevant foreign currencies.

Information on secured assets relating to offered debt securities.

For sukuk issuance, the prospectus also needs to include:

Information regarding the underlying assets of the sharia structure.

Type and summary of the sharia contract being used (aqad).

Revenue source for the profit sharing or fee based sharia structure.

Rating of the sukuk.

Sharia opinion from sharia scholars.

 16. Who is responsible for the prospectus (or other main offering document) and/or who is liable for its contents?

The process of preparing the prospectus and those responsible for its contents are essentially the same as in the case of an equity offering (see
Equity Capital Markets in Indonesia, Question 13).

Timetable: debt securities issue

17. What is a typical timetable for issuing and listing debt securities?

The timetable for issuing and listing debt securities is the same as for an equity offering (see Equity Capital Markets in Indonesia, Question 18), but
without prior presentation of the prospective issuer's plans to the Indonesia Stock Exchange (IDX).

Tax: debt securities issue

18. What are the main tax issues when issuing and listing debt securities?

From a tax perspective, the interest of bonds is defined in broad terms to include premiums, discounts, and any capital gains from the bonds.
Generally, the bonds interest payable to resident taxpayers and permanent establishments (other than banks operating in Indonesia, government-
approved pension funds and mutual fund taxpayers) is subject to withholding tax of 15% that is final in its nature. The withholding tax doe not apply to
the bonds interest payable to banks operating in Indonesia. The bonds interest received and/or earned by government approved pension funds are
exempt from income tax. Bonds interest received and/or earned by a mutual fund taxpayer registered at the Financial Services Authority (Otoritas
Jasa Keuangan) (OJK) are subject to final income tax at the following rates:

0% for the years 2009 to 2010, and 5% for the years 2011 to 2013.

5% for the years 2014 to 2020.

10% for the years 2021 onward.

Under Article 26 of the Income Tax Law, interests, including premiums, discounts and compensations in connection with guarantees, swap premiums,
and other hedging transactions which are paid or due for a payment by a tax resident to a non-tax resident, will be subject to withholding tax at a rate
of 20%, or a reduced rate by an applicable income tax treaty to which Indonesia is a party.

Clearing and settlement of debt securities

19. How are debt securities cleared and settled and what currency are debt securities typically issued in? Are there special
considerations for holding, clearing and settling debt securities issued in foreign currencies?

Since the enactment of the Indonesian Capital Markets Law, the Indonesia Stock Exchange (IDX) has applied scripless trading. To facilitate this, the
Indonesian Central Securities Depository (PT Kustodian Sentral Efek Indonesia) (KSEI) was established. An investor holds its debt securities in a
security account maintained by the KSEI through the investor's custodian. Investors also maintain cash accounts into which payments related to their
securities are made. The settlement for the debt securities is conducted by book entry settlement through the KSEI.

The procedures for holding, clearing and settling debt securities issued in foreign currencies are the same as for rupiah-denominated debt securities.
According to the IDX Fact Book 2014, there are currently only three US dollar-denominated bonds listed on the IDX (both issued by the same
company).

Reform

20. Are there any proposals for reform of debt capital markets/exchanges? Are these proposals likely to come into force
and, if so, when?
The Financial Services Authority (OJK) is one of the most active Indonesian governmental institutions and regularly updates and reviews its rules,
regulations and policies. In doing so, the OJK frequently consults with practitioners, issuers, investors and the public at large. There have been quite a
number of newly issued OJK Rules to ease compliance with the regulatory framework, and this trend is likely to continue.

In 2015, the OJK issued an amendment to the Bapepam Rule regarding sukuk issuance. The OJK is currently seeking submissions from practitioners
and interested parties on proposed amendments to tighten up the rules governing the ratings assigned to debt securities, and so on. However, no
major reforms are in the pipeline at the present time.

Contributor profiles

Putu Suryastuti, Partner

Assegaf Hamzah & Partners

T +62 21 25557800
F +62 21 25557899
E putu.suryastuti@ahp.co.id
W www.ahp.co.id

Professional qualifications. Advocate, Indonesia

Areas of practice. Capital markets.

Mohammad Renaldi Zulkarnain, Senior Associate

Assegaf Hamzah & Partners

T +62 21 25557800
F +62 21 25557899
E mohammad.zulkarnain@ahp.co.id
W www.ahp.co.id

Professional qualifications. Advocate, Indonesia

Areas of practice. Capital markets.

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