Bank Indonesia tightens commercial paper ruling

JAKARTA (JP): Bank Indonesia has issued a tighter ruling in the issuance of commercial papers in the money market to protect the investing public.

One of the important points in the ruling, issued on Aug. 11, is the requirement imposed on would-be commercial paper issuers to receive an investment grade from a registered credit rating agency.

Other important items in the new ruling are the roles of banks and securities companies in the issuance of commercial papers and the restriction imposed on them.

The criteria of a commercial paper, according to the new ruling, is an unsecured promissory note issued by non-bank companies. The maturity period of the debt facility should be up to 270 days.

The issued debt instrument should receive an investment grade from an independent rating agency such as PT Pfindo, the only credit rating agency in the country.

The issuing agent of short-term commercial papers or unsecured promissory notes should be banks or securities companies.

Besides operating as issuing agents, the securities companies, which are currently involved only in securities trading on the capital market, are also allowed to act as dealers of the sales of commercial papers.

However, unlike banks, securities companies are not allowed to act as paying agents for the issuance of commercial papers.

The ruling also stipulated that banks are not required to have specific licenses from the central banks to get involved in the issuance of commercial papers.

As arrangers of the issuance of the short-term promissory note, banks are, however, required to prepare and disseminate information on would-be issuing companies such as their latest annual financial statements and latest quarterly reports.

Their latest annual financial reports should receive a clean bill of health from the Capital Market Supervisory Agency (Bapepam).

The new ruling also allow banks to buy commercial papers on the primary and the secondary markets both for their own or for other parties.

Banks, however, are barred from acting as arrangers, issuing agents or paying agents of the commercial papers issued by its affiliates or companies having doubtful and bad debts. In addition, a bank is also prohibited from becoming a guarantor in the issuance of a commercial paper of any companies.

Banks which violate the regulation are subject to an administrative sanction, according to the central bank's new ruling. (hen)