Credit market in Indonesia is dominated by the large commercial banks. The major commercial banks primarily focus their lending activity on top tier corporates in Indonesia and loan products are generally very basic – usually being collateral based loan products. Our focus is on credit support related, specifically.

(i) whether or not there is restriction for Indonesian incorporated company to provide credit support for the acquisition of its or its holding companies’ shares. Subject to the corporate benefit principle, in which the board of directors would need to act in the best interest of the company, there is no statutory prohibition on a company established in Indonesia from providing financial assistance in connection with the acquisition of its own shares or those of its parent company (either direct or ultimate). However, there are protection provisions for minority shareholders under the Indonesian Company Law and Capital Market Law. Under the Indonesian Company Law, any shareholder has the right to file a lawsuit against a company at the District Court whose jurisdiction covers the domicile of the company if the shareholder considers it has been harmed by the actions of the company unfairly and without reasonable grounds as a result of a general meeting of shareholders, board of directors meeting or board of commissioner meetings resolutions. Shareholders can use this right if they feel that the granting of any financial assistance will cause them harm. There are also some limitations in relation to the purchase by a company of its own shares or shares of an affiliated company.

(ii) How strong is the credit support given by a company in Indonesia likely to be? It is strong. The company directors will need to satisfy themselves as to the corporate benefit of the transaction to ensure they are not violating their duty of care to the company, but in practice, most companies can provide full guarantees and security.