SBLC Non Recourse Loan Template for Indonesia

An SBLC Non Recourse Loan agreement is a specialized financing document that allows you to obtain funding secured by a Standby Letter of Credit while limiting your direct liability for repayment. Under this arrangement, the lender agrees to look solely to the SBLC for recovery rather than pursuing your other assets, making it an attractive option for structured financing in Indonesia.

When do you need this document?

You need an SBLC Non Recourse Loan agreement when undertaking project financing where the project's cash flows may be uncertain, but you have access to a high-quality bank guarantee. This document is essential for international trade transactions where you want to leverage your banking relationships without pledging personal or corporate assets. It's particularly valuable when establishing cross-border financing arrangements where lenders are more comfortable with the creditworthiness of your SBLC-issuing bank than with your direct credit profile. You'll also need this agreement when structuring complex transactions involving multiple parties where clear limitation of recourse is crucial for risk management.

Key legal considerations

The non-recourse provisions are the most critical aspect of this agreement, as they must clearly establish that the lender's sole remedy is against the SBLC and not against you personally or your other assets. You must ensure the SBLC meets specific criteria, including being issued by a bank acceptable to the lender, having sufficient coverage amount, and containing appropriate terms for drawing. The agreement should specify detailed conditions for SBLC replacement, renewal requirements, and procedures for handling expiry or reduction. You need to carefully negotiate the events that trigger SBLC draws, ensuring they align with actual loan defaults rather than technical breaches. The document must also address what happens if the SBLC-issuing bank's credit rating deteriorates, typically requiring replacement with an alternative bank of similar standing.

Legal requirements in Indonesia

Under Indonesian law, your SBLC Non Recourse Loan agreement must comply with the Indonesian Civil Code's general contract provisions and specific banking regulations. Law No. 7 of 1992 as amended by Law No. 10 of 1998 on Banking governs the issuance and operation of standby letters of credit, requiring the issuing bank to be licensed in Indonesia or an approved foreign bank. You must ensure compliance with Law No. 24 of 1999 on Foreign Exchange if the transaction involves foreign currency or cross-border elements. OJK Regulation No. 40/POJK.03/2019 establishes standards for bank guarantees that affect SBLC requirements, including documentation and reporting obligations. The agreement must be executed in accordance with Indonesian notarial requirements if it involves Indonesian parties or assets, and may require registration with relevant authorities depending on the transaction value and nature.