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This page updated regularly deals with securitization developments in Indonesia. If you have any news or development to contribute to this, please write to me.
State of the Market:
The first securitisation transaction in Indonesia was in August 1996 by PT Astra Sedaya Finance involved an unregulated finance company's auto loan receivables. There were two more transactions involving auto receivables in 1996 and 1997. Besides, there were some credit card securitisations. Even as the market was poised for substantial growth, the Asian currency crisis of 1997 crashed all potential deals. There has been a lull in activity since then.
Legal initiatives to promote securitisation:
In general, the Indonesian legal environment, with a Roman-Dutch system, is friendly towards securitization. Receivables can be assigned in such a way that they would not be treated as part of the seller's estate if it becomes bankrupt.
Being a civil law jurisdiction, an assignment of a receivable under Indonesian law will be treated as bilateral contract between the assignor and the assignee and will be binding upon the obligor only when a written notification has been done to the obligor or the obligor has consented to the assignment. The formal method of notification permitted under law is reflective of the archaic Roman system: the notice will be delivered by the offices of the Court. This being impractical in most cases, the assignee mostly keeps the assignment technically incomplete by not giving a notice of assignment upfront, but reserving a right to give notice, either in his own capacity or as holder of a power of attorney of the assignor, at a later date if the trigger events of default arise.
Indonesia also has some difficulty in defining the legal structure of the SPV. Trusts are not known in Indonesian law; some of the securitisation SPVs have been incorporated as "multifinance companies", an Indonesian version of finance companies engaging in several financial services.
Indonesia embarked on a plan to encourage securitization, particularly in the local market. BAPEPAM, the capital markets regulator, produced a set of proposals for the regulation of on-shore securitization including a mechanism for establishing on-shore SPV's using some form of mutual fund.
Taxation of securitisation:
Two tax issues continued to prove problematic.
VAT: Thought there is also no VAT on the sale price of the receivables, VAT @ 10% is imposed on fees including any servicing fee, and therefore in most deals the excess spread in the transaction is paid to the originator as deferred purchase price.
Withholding tax: A more difficult structuring challenge involves the issue of withholding tax on interest payments off shore. There are conditions for exemption from this requirement that require creation of taxable SPV in Indonesia. The transactions in the past have circumvented withholding tax by bringing an exempt entity and selling the interest as a separate strip to such exempt entity. However, it is doubtful if such a structure would be permitted by the tax authorities.
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