This article provides an analysis concerning the effects of Indonesian Financial Services Authority (“OJK”) Regulation No. 30/POJK.04/2019 set to be in force on June 2020 towards the issuance of MTNs.
| Rafi Adrian Rahadi, Rininta Ayunina
OJK Regulation Number 30/POJK.04/2019 on the Issuance of Debt Securities and/or Sukuk on Private Placement and Medium Term-Notes
Popular among aggressive investors, a medium term-note (“MTN”) is a debt security which generally reaches its maturity in the span of 5-10 years. As a debt security, the interest rate of MTNs are manifested in the form of coupons on a floating rate. Consequently, MTNs are ideal for investors seeking for interest that matures outside of the traditional short-term or long-term investment. On the other hand, companies derive their benefit from the leniency that MTNs could offer, such the flexibility to enact the maturity dates based on the company’s cash-flow requirements and refrain from public offerings which increases interest rates.
2019 exemplified the fact that Indonesian companies and investors alike are very keen on being engaged with MTNs – with a total the MTNs issued by early January amounting up to Rp. 1.90 Trillion. Not only that the prospect provided by MTNs are highly enticing to companies and investors alike, but at that time, MTNs were not specifically governed by any regulation. In correlation, there existed little to no legal hindrance for companies to issue MTNs.
For instance, unlike other debt market instruments like bonds, MTNs used to be exempted from submitting a registration statement to the Indonesian Financial Services Authority (“OJK”) due to their private placement. Furthermore, companies are not obliged to register issuance and transactions of MTNs to any depository and settlement institutions such as the Indonesian Central Securities Depository (“KSEI”). In addition, there existed no obligation wherein an MTN issuer should obtain an investment grade from a credit rating agency listed under the OJK.
While the shortcuts that MTNs could offer companies and investors are nothing but thrilling, we must not turn a blind eye upon the predicaments that may arise. Since MTNs are not banking products, they are not guaranteed by the Indonesian Deposit Insurance Agency. This is catastrophic in the event that a company defaults in paying their MTN coupons – a problem which had become quite prevalent in Indonesia recently.
In an attempt mitigate the aforementioned issues, the OJK issued Regulation Number 30/POJK.04/2019 on the Issuance of Debt Securities and/or Sukuk on Private Placement (“EBUS Private Placement Regulation”), set to be in effect by June 2020. The goal of this regulation is simply to ensure legal certainty to debt securities and sukuks issued on private placement, wherein MTNs are within the ambit of debt securities.
Pursuant to the EBUS Private Placement Regulation, the OJK takes a more investor-protective approach in fabricating its regulation, placing the legality of MTNs similar to that conventional debt security such as bonds. With the formulation of the EBUS Private Placement Regulation, the OJK provides a procedural framework concerning the issuance of EBUS inter alia, MTNs. Whilst previously MTNs were exempted from submitting a registration form to the OJK, it is now a mandatory provision. Furthermore, persons that are outside the scope of public companies must obtain an investment grade from an OJK-certified credit rating agency and are obliged to utilize the services of an arranger and a monitoring agent. Finally, the OJK deemed that persons who are legally allowed to buy MTNs are limited only to professional investors, in which the threshold for said person is regulated under OJK Regulation Number 11/POJK0.4/2018.
Based on the previously mentioned regulation, the OJK deserves an applause for providing an oversight and regulation towards a financial market that exists on private placement. Due to the stricter administrative requirement that promotes for transparency in issuing MTNs, investors are provided the necessary protection when engaged with MTNs. Despite of the pro-investor approach that OJK is advocating for, drawbacks undoubtedly do exist.
The reason why companies are usually attracted to MTNs is because its issuance is relatively simple – no complex administrative requirements were needed to be fulfilled. However, with the EBUS Private Placement Regulation, companies are now obstructed with registration submissions to the OJK. This decreases cost and time efficiency for the issuers, effectively repealing one of the most appealing characteristics of the process of issuing an MTN. In fact, even before the EBUS Private Placement Regulation is in effect, there was already a decrease in the amount of MTNs issued in 2019 for the whole of 2019, with only Rp. 15.52 trillion – a decrease from 2018, which saw an amount of Rp. 23.50 trillion. This illustrates the notion that leniency in administering MTNs for issuance purposes is one of the biggest reasons why MTNs were so attractive.
Conclusively, the OJK has been very decisive in ensuring investor protection through the promulgation of the EBUS Private Placement Regulation. Whilst transparency is considered of utmost importance, we must not overlook the fact that MTNs are ultimately a part of business, which puts forward managerial efficiency and effectivity. A sharp decline in the amount of MTNs issued in 2019 could mean that MTNs are not the most reliable debt security, due to the enactment of the EBUS Private Placement Regulation – it must be stressed out that in 2019 and even at the time of writing this article, the said regulation is not yet in force. This indicates how companies are attracted to the administrative leniency that MTNs could offer. As of now, there are two possibilities that could occur once the EBUS Private Placement Regulation is already force – whether an investor protection oriented regulation could actually attract more companies to issue MTNs, or whether administrative leniency remains the primary benefit of MTNs in Indonesia.
 EBUS Private Placement Regulation, General Commentary
 EBUS Private Placement Regulation, Art. 15(1)
 EBUS Private Placement Regulation, Art. 4(3)
 EBUS Private Placement Regulation, Chapter IV
 EBUS Private Placement Regulation. Art. 7