POJK 30/2019: OJK regulates private placements, with certain global bonds being exempted but some uncertainty remaining

Market participants had expressed concerns and sought clarification as to the ambit of certain provisions of POJK 30/2019, particularly in the context of private placements of global debt securities issued under Rule 144A and/or Regulation S of the U.S. Securities Act of 1933 (Global Bonds).

Types of issuers and securities

POJK 30/2019 applies to practically all issuers other than the Indonesian sovereign. Specifically, the regulation applies to any issuers that are (i) public and non-public companies (including state owned enterprises), (ii) supranational institution, or (iii) collective investment contract.

A security (including bonds issued in MTNs, sharia programs, standalone bonds and perpetual notes) will fall under the ambit of POJK 30/2019 if it has a size of at least IDR 1 billion (~USD90,000) (on a standalone or annual aggregate basis) and: 

a. it has a maturity of more than one year; or

b. it has a maturity of less than one year but is not subject to review or supervision by any authority in Indonesia.

The aim of POJK 30/2019 is to regulate private placements.

OJK Filing and Requirements 

POJK 30/2019 requires the issuer to submit all transaction documentation related to a covered private placement to OJK by no later than 30 calendar days prior to the issue of the securities in the private placement.

Although there is no requirement for OJK to comment or provide feedback on the transaction documentation submitted, POJK 30/2019 sets out certain requirements for private placement subject to the regulation. These include the following:

a. the clearing and settlement system for the securities must be PT Kustodian Sentral Efek Indonesia (KSEI);

b. only licensed securities brokers with the OJK may participate as arranging banks/private placement agents for the issuance;

c. the securityholders would have to be represented by a monitoring agent that is licensed as wali amanat by the OJK; 

d. securities can only be purchased and subscribed by “Professional Investors” (as defined in POJK 30/2019). All investors will be required to provide a confirmation to the issuer that they are qualified as “Professional Investors”; and

e. the contents of the information memorandum/offering documents must be similar to a Indonesian local bond prospectus.

A number, if not all, of these requirements would have represented a substantial departure from the way in which Global Bonds transactions are customarily conducted globally, including for companies based in Indonesia. It is unclear to what extent in would have been feasible for the cross-border market to adapt to POJK 30/2019.

Exemptions 

On 12 June 2020, the Capital Markets Executive Chairman of OJK issued a letter No.S-161/D.04/2020 on Implementation of POJK 30/2019, which clarifies that Global Bonds will be exempted from POJK 30/2019 if they:

(i) are issued only to investors outside Indonesia; and 

(ii) are not offered to any Indonesian investors, i.e. Indonesian citizens, Indonesian institutions or any other Indonesian legal entities. 

The letter indicates that OJK retains the residual discretion to order an issuer to comply with POJK 30/2019, although it is unclear what parameters OJK will apply in so doing.

Given the recency of the OJK Letter, it remains to be seen how it will be implemented by OJK. Nonetheless, we believe that it is reasonable to assume that so long as private placements of Global Bonds are structured in accordance with the stated exemptions as provided under the OJK Letter, OJK would be less likely to exercise its residual discretion. 

Some final thoughts

The OJK Letter gives an indication as to OJK’s approach in implementing POJK 30/2019. It seems that, at this point in time, there is no intention to disrupt accepted customary international market practice for private placements of Global Bonds. 

Market participants should nevertheless be cognisant that POJK 30/2019 will result in more stringent offering and selling restrictions for Global Bonds. In particular, issuers and arranging banks/private placement agents are no longer permitted to offer or sell any part of a Global Bonds to Indonesian investors. This means that, to comply with the exemption from POJK 30/2019, existing market practices of offering to fewer than 100 Indonesian investors and allocating to fewer than 50 Indonesian investors will no longer be permissible, regardless of the jurisdiction in which they are resided.

Accordingly, transaction documentation for Global Bond offerings, including existing MTN programmes, will need to update the Indonesia selling restriction language, consider additional disclosure with regards to POJK 30/2019 in offering documents, and seek updated representations and warranties from transaction parties.

At the margins, POJK 30/2109 might have additional, unintended consequences on relatively common transaction structures in Indonesia. For example, depending on the details, if pre-IPO convertible bonds are issued to investors in Indonesia (for whatever reason, be it financing or structuring), they could potentially be subject to the new regulation. At this point it is not clear how market practice will develop with regard to these structures. It is possible that OJK will issue additional implementing regulations to address these and similar matters.