Changes move foreign currency debt further out of reach for many Indonesian borrowers.

On October 28, 2014, Bank Indonesia, the Indonesian central bank, issued BI Regulation No. 16/20/PBI/2014 on Prudential Principles in the Management of Offshore Borrowing for Non-Bank Institutions (BI Regulation 16), to impose significant restrictions on new offshore financing arrangements entered into by non-banking institutions in Indonesia. The new regulation will come into effect on January 1, 2015, and will require Indonesian non-bank borrowers to satisfy certain minimum hedging and liquidity ratios in relation to their external indebtedness. The second phase, effective January 1, 2016, will impose a minimum “BB” ratings requirement on borrowers seeking offshore funding.1

The new regulation will deny hundreds of Indonesian companies, including seasoned borrowers and issuers, access to the international high yield bond and loan markets, which have provided much of the capital that has funded the development of capital intensive industries — such as internet, cable, mobile, residential and commercial real estate development, shipping and airlines — in the US, Europe and Asia. By severely restricting their access to growth capital, this new regulation is likely to put many fast-growing capital intensive Indonesian companies at a competitive disadvantage to their rivals in other Asian and international markets.