Sponsor Support Agreement Template for Indonesia

A Sponsor Support Agreement is a critical legal document in Indonesian project finance that establishes the obligations and commitments of project sponsors to support a project company throughout the development, construction, and operational phases. This agreement provides lenders and other stakeholders with essential comfort regarding the project's financial stability and completion risk mitigation.

When do you need this document?

You need a Sponsor Support Agreement when developing large-scale infrastructure projects in Indonesia, particularly in sectors like power generation, transportation, oil and gas, or mining. The agreement becomes essential when project lenders require additional security beyond the project's own cash flows and assets. This is especially important in limited-recourse financing structures where the project company has minimal recourse to sponsor assets. Indonesian banks and international lenders typically mandate these agreements for projects exceeding certain investment thresholds or involving foreign sponsors. The document is also crucial when dealing with complex ownership structures involving multiple sponsors or when Indonesian regulations require local partnership arrangements.

Key legal considerations

The agreement must carefully balance sponsor obligations with limited recourse principles that protect sponsors from unlimited liability. Critical clauses include equity contribution requirements, cost overrun support mechanisms, and completion guarantees that define when and how sponsors must provide additional funding. You must clearly define trigger events that activate sponsor obligations, such as cost overruns exceeding predetermined thresholds or technical performance failures. The agreement should specify whether support obligations are joint and several among multiple sponsors or proportionate to ownership interests. Subordination provisions are essential to ensure sponsor support ranks appropriately relative to senior debt obligations. Currency and foreign exchange provisions become particularly important given Indonesia's exchange controls and potential currency volatility affecting project economics.

Legal requirements in Indonesia

Under Indonesian law, Sponsor Support Agreements must comply with the Indonesian Civil Code governing contract formation and validity. The Investment Law No. 25 of 2007 imposes specific requirements for foreign sponsors, including compliance with negative investment lists and minimum capital requirements. Corporate sponsors must ensure their support obligations comply with the Limited Liability Companies Law No. 40 of 2007, particularly regarding corporate benefit and shareholder approval requirements for guarantees. Foreign exchange regulations under Law No. 24 of 1999 may restrict certain support mechanisms or require Bank Indonesia approvals for cross-border transactions. If the project involves strategic sectors, additional approvals from relevant ministries may be required. The agreement must also consider Indonesian banking regulations that may limit sponsor funding mechanisms or require specific documentation for loans or guarantees. Local content and local partnership requirements may affect sponsor selection and support structures, particularly in sectors where Indonesian law mandates domestic participation.