IFLR 1000
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Indonesia was "never really affected by the global financial crisis [but] the country now faces an escalating inflation rate with banks slowly withholding their lending", comments a leading partner. The recent disclosures of prime lending rates revealed a declining lending rate trend, largely due to increasing competition....

Indonesia was "never really affected by the global financial crisis [but] the country now faces an escalating inflation rate with banks slowly withholding their lending", comments a leading partner. The recent disclosures of prime lending rates revealed a declining lending rate trend, largely due to increasing competition. Pricing competition in the sector will likely intensify as borrowers become more aware of the different rates being offered on the market. Currently, the rate differentials between banks with the highest and lowest lending rates and National Integration Movement (NIM) have declined to 8.4% and 5.1% respectively, down from the 21-month peaks of 11.4% and 8% respectively.

Despite short-term concerns over rising inflation weighing on Indonesian banking stocks, there is a chance of retaining the current over-priced share value. A leading banking partner believes that the "two key risks to the sector are lower spreads due to lending and funding competition, and higher credit costs".

Elsewhere, the introduction of the Indonesian Currency Law (Currency Law), which entered into force on June 28 2011, now requires the use of Indonesian Rupiah (Rp) for domestic Indonesian financial transactions. The Currency Law will require careful examination of all transactions conducted within Indonesia in currencies other than Rp and, where the Law's exemptions do not apply, adjustments will have to made to the transaction agreements in order to convert payments into Rp.

"Any payment made by or to a counterparty overseas for goods or services with an overseas component will be exempt from the requirement that it be made in Rp," says a leading partner. Proving the international element will be the key to qualifying for the exemption. One likely scenario - a transaction between an Indonesian company and the Indonesian branch of an international company - may not necessarily get exemption, particularly if the goods or services in the deal are all in Indonesia. Desicions on whether a particular transaction is indeed international will be made on a case-by-case basis.

Lending from a foreign lender into Indonesia, or to an overseas borrower by an Indonesian lender will clearly be exempt from the Rp requirement, as will trading in foreign currency within Indonesia. Similarly, the Currency Law should not impact the ability of Indonesian companies to issue or trade in financial instruments denominated in currencies other than the IDR overseas.

The Indonesian capital markets experienced an all-time high at the end of 2009, prompting the authorities into action with many implications for 2010. "The growing power of Indonesian investors and the middle class, married with the increased potential for public offerings on the stock exchange led to more activities on the stock market and a subsequent growth in the economy," says a partner....

The Indonesian capital markets experienced an all-time high at the end of 2009, prompting the authorities into action with many implications for 2010. "The growing power of Indonesian investors and the middle class, married with the increased potential for public offerings on the stock exchange led to more activities on the stock market and a subsequent growth in the economy," says a partner.

One resulting endeavour in May 2010 was to issue a new Negative Investment List in order to clarify which industries are closed, and which are closed but open to limited participation by investors. The Negative Investment List contains provisions over which industry sectors in Indonesia foreign entities may invest in and how they may do it.

However, there is concern that the 2010 Negative Investment List only refers to rights issues, whereas an increase of foreign investor shareholding can also be done through a tender offer. It is believed that the 2010 Negative Investment List will also be applicable if foreign investors increase their shareholding so that they are considered controlling shareholders.

A few notable applications include a foreign investor selling its excess shares to a domestic investor or alternatively, a foreign investor selling its excess shares through a public offering conducted by the company (in which the investor owns shares) in its domestic capital market. If the company, as mentioned above, buys the excess shares owned by the foreign investor, it can treat them as treasury stocks.

When the parliament and the government of Indonesia passed the Anti-Monopoly Law in 2009 it was not anticipated that the implementation of the regulation would take years. But in July 2010 the government finally passed the implementing regulation for Articles 28 and 29. The former (Article 28) prohibits M&A that may result in a monopoly, while the latter requires post-notification for M&A of a certain size.