Asset Securitization in Indonesia
Asset securitization is a well-known banking activity in Indonesia, governed by various regulations in Indonesia, one of which is the Indonesian Financial Services Authority (Otoritas Jasa Keuangan Republik Indonesia - “OJK”) Regulation Number 11/POJK.03/2019 on Precautionary Principles in Asset Securitization Activities for Public Banks (“OJK Regulation 11/2019”). According to Article 1 point 2 of this regulation, asset securitization is the process where an entity issues asset-backed, whether conventional or sharia, securities through the transfer of financial or sharia assets from the original creditor to such entity. This transfer is followed by a payment to the original creditor, sourced either from the proceeds of the securities’ sale to investors or the issuing entity's funds.
Law number 4 of 2023 on the Development and Strengthening of the Financial Sector (“DSFS Law”) has specific regulations on asset securitization. Asset securitization is to be performed by entities which are special purpose vehicles, which undertake the following activities: (i) receive the transfer of the assets from the original creditor; (ii) securitize the assets; and (iii) issue an asset-backed security for the investor (beneficiary). These special purpose vehicles take the form of a limited liability company with the following characteristics:
- may be established by 1 (one) or more shareholder;
- managed by a financial service institution which is supervised by the OJK or its appointed party;
- has an authorized capital as determined by the OJK;
has at least 1 (one) member of the Board of Directors (“BoD”) and Board of Commissioners (“BoC”) each;
- the shareholders and/or its BoD and/or BoC members are prohibited to perform any merger, acquisition and spin-off of the special purpose vehicle without prior approval from the OJK;
- the shareholders are prohibited to transfer his/her/its shares to other entities without prior approval from the OJK;
- the shareholders are responsible for the business activities of the special purpose vehicle; and
- the assets that are transferred from the original creditor to the special purpose vehicle for securitization shall be recorded as the assets of the special purpose vehicle, or as the legal owner for the interest of the investor (beneficiary);
This regulation regarding special purpose vehicles is different from previous regulations. As reflected under the explanation of Article 4 paragraph (2) of OJK Regulation 11/2019, the issuing entity shall be in the form of a collective investment contract, banks, financial institutions other than banks, or other specific-purpose entities. The addition, or change, of the issuer’s legal status has had a resonating effect on the structure of assets securitization in Indonesia. In general, current asset securitization in Indonesia is initiated by a financial institution that took on the role of the issuer; it should be noted that such institution may become the issuer in numerous securitizations. With the introduction of special purpose vehicles, the implementing regulation must determine whether such special purpose vehicles shall be dedicated to one security product or may issue more than one security product. It is expected the above characteristics will be further regulated to clarify the differences between securitization before and after the enactment of the DSFS Law.
If you require further information related to this client alert, please do not hesitate to contact:
Nurjadin Sumono Mulyadi & Partners
Contact information:
Diki Andikusumah
Partner
Marbuhal Silitonga
Associate