Member Article

General Terms and Conditions for Contracts with Trustees for the Issuance of Debt Instruments

Bapepam-LK introduced a new regulation regarding the general terms and conditions for contracts with Trustees for the issuance of debt instruments, also known as Bapepam-LK Regulation No. VI.C.4. This regulation sets out the detailed terms and conditions that must be included in contracts with Trustees, including the roles and obligations of the Trustee. Previously, contracts with Trustees were based on the agreement between the Issuer and the Trustee.

The primary goal of this regulation is to provide standard terms and conditions for contracts with Trustees in relation to the issuance of debt instruments in the Indonesian capital market.

As of the issuance of this regulation on 6 September 2010, the terms and conditions that must be included in contracts with Trustees are, among others, detailed information regarding any debt instrument issued in a foreign currency, provisions related to buy back, allotment and amortization of the debt instrument, the procedures and quorum for the meeting of securities holders, termination of the Trustee and appointment of a new Trustee, events of default, and reporting requirements.

The interesting provision of this regulation is the obligation of the Trustee to conduct a due diligence exercise on the Issuer and sign a statement letter confirming completion of the due diligence process. Matters to be covered in the due diligence review are specified in this regulation and include among other things, a site visit to the premises of the Issuer, the financial capacity of the Issuer prior to and during the term of the debt instrument to be issued, the financial risk and other risks that may have an impact on the business activities of the Issuer, any conflicts of interest and/or potential conflicts of interest between the Trustee and the Issuer, a valuation report on the value of the collateral (if any) prepared by an independent appraiser, a rating report issued by an independent Securities Rating company, other material aspects that may have a direct or indirect impact on the business activities and the financial capability of the Issuer.

The due diligence requirement which is referred to above should be understood as a separate requirement required for the issuance of securities instruments (including debt instruments) which are regulated under the existing Bapepam-LK Regulations regarding The Prospectus for a Public Offering of Securities Instruments (Bapepam-LK Regulation Nos. IX. C.1, IX.C.2, and IX.C.3).

In addition to the obligation of the Trustee to conduct a due diligence, under this new regulation, the Trustee is also responsible for any damages suffered by the holder of the relevant debt instrument due to any failure by the Trustee to perform its role and obligations as stipulated in this regulation.

Public Companies can Now Issue Shares with a Different Nominal Value from Existing Shares in the Same Classification

Under the Indonesian Company Law, shares issued by limited liability companies including public companies, must have a nominal value, and all shares issued by companies must be fully paid up by the shareholders. In line with this nominal value requirement under the Company Law, shares issued by public companies must also have a nominal value. However, due to the global financial crisis and capital market fluctuations, it is possible that the market value of the shares as listed in the capital market might be lower than their nominal value.

On 1 October 2010, Bapepam-LK issued Regulation, No. IX.D.6, regarding Shares with a Different Nominal Value. Under this regulation, public companies can issue new shares with a different nominal value than that of existing shares. Previously, the issuance of new shares with a different nominal value would require the issuance of a new classification of shares. To avoid this situation, before issuing new shares with a lower nominal value, public companies usually conducted a stock split of the existing issued shares so that the new shares could be issued with the same nominal value without needing to have a new classification of shares.

Under this regulation, shares with a different nominal value can only be issued if their market value on the stock market is lower than their nominal value as stated in the Articles of Association of the public company. Important provisions related to the issuance of new such shares with a different nominal value require (i) new such shares to have the same rights as existing shares (unless the new shares are intended to create a new classification of shares) and (ii) that existing shares cannot be converted to new shares with a different nominal value.

 

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