Bonds and Failed Pays

In the Capital Market, one of the securities instruments traded is bonds. Are bonds really? Bonds are a term used in the financial world, which is a statement of debt from the bond issuer to bondholders and a promise to repay the debt principal along with the interest coupons later on the due date of payment. Interesting bonds and become an investment investment choice due to several things, including the following. First, it can provide fixed income in the form of a coupon (interest), where the bond holder gets regular interest income as long as the bonds are valid. Second, the profit of selling bonds (capital gains), namely the profits obtained by investors when bond holders sell bonds higher than or compared to the purchase price at the initial offering, then investors will get a flexible amount of additional funds. Third, bonds will get loans with more competitive interest rates. This is determined on the basis of the company’s financial capacity and attention to the conditions of interest rates in banks. When issuing bonds, the process of determining interest rates is relatively flexible according to the ability of the bond issuer. Fourth, get alternative financing through the Capital Market. Bonds are a type of debt in the long run. so that companies that are having difficulty finding funding through the Capital Market by issuing bonds with a number of funds that are really needed, can strengthen the capital structure.

Do bonds always bring good luck

Do bonds always bring good luck

Even so, do bonds always bring good luck? In practice, losses can occur. This happens if the company that issues bonds is unable to pay the bond coupon or the bond issuer cannot return the bond principal. The inability of the company towards both important things (paying its obligations) is known as “default” or “default”. Default is negligence, the negligence of the debtor to fulfill his obligations to the creditor in an agreement (breach of contract) or known as “Default” which is regulated in article 1238 of the Civil Code (Civil Code). This default arrangement exists in each Trustee Agreement (PWA) that must exist and be formed between the Issuer and Trustee (representing the bondholders) in the issuance of bonds in accordance with the provisions stipulated by BAPEPAM (now the Financial Services Authority or OJK ) as stipulated in Article 52 of the Law Capital Market Law No. 8 of 1995 (UUPM). Through this provision, it can be interpreted that PWA is the principal agreement of the rights and obligations of Issuers and Trustees that regulate clearly and in detail with the aim of avoiding the occurrence of losses on each party, including in the event of a default by the bond issuer against its obligations. With this PWA basis, the whole and pattern of legal relations between the Issuer and the Trustee, in the context of bond issuance, is the basis for the Issuer’s work to obtain their rights from bonds and carry out the obligation to always pay off what are the rights of the bondholders. But still only the default can occur.

The term default is better known as default. It can be equated with default set in Article 1238 of the Civil Code stating that “The debtor is negligent, if he is a warrant or with a deed of that kind has been declared negligent, or for his own agreement, if this stipulates that the debtor must be considered negligent with the passing of the specified time “. In the event that a debtor is in a negligent state, it is regulated in Article 1238 of the Civil Code. A debtor is deemed negligent, if by a warrant or with a similar deed has been declared negligent, or for the sake of his own agreement if it is determined, that the debtor will have to be considered negligent with the passing of the specified time. Negligent statement is a legal effort by which the creditor notifies, reprimands, warns the debtor at the latest when he is obliged to fulfill the achievement and if the moment is exceeded the debtor will be negligent. Based on the default theory, the company can be considered as a default if the company does not do what it has agreed to do, does what it has agreed to do, but not as agreed, does what it promised but is too late to do so; or do something according to the agreement not to do. A company that has issued a bond is considered a default, so bondholders have the right to ask the Trustee who has been appointed to and represent the interests of the bondholders to hold a Bondholders General Meeting (RUPO).

RUPO may occur if a default occurs, then changes in restrictions contained in the Trustee Agreement (PWA), and if there is a change in funds must be carried out in accordance with and refer to BAPEPAM Regulation No. XK4 concerning Amendment to the Use of Bonds Issuance of Funds. A company is considered negligent, it will have legal consequences. Bond issuers (issuers) are said to be negligent or injured in promises for promises contained in PWA if they do the following:

  1. The company is negligent in paying the principal and / or interest, or other obligations contained in PWA.
  2. The Company is negligent in implementing or disobeying and or violating the provisions in PWA or other agreements made in connection with the issuance of bonds.
  3. The company’s statements and guarantees regarding the status of the company and / or the company’s finances for the management of the company’s business are not in accordance with reality or made incorrectly.
  4. The company broke up for any reason or was declared bankrupt, except for the agreed conditions.
  5. The occurrence of a breach of contract on a debt agreement made by the company or the amount of the company’s debt that has existed now or that will exist in the future.
  6. The Company for any reason in the opinion of the Trustee is no longer able to manage or control part or all of the assets.
  7. Other permits and approvals from the government were canceled, because the business was considered unable to continue.
  8. The Company is based on an order from the Court that has the legal power to pay a number of funds to a third party which if paid will materially affect the company’s business and this obligation is not resolved within the period specified in the court decision.
  9. The Company cannot fulfill its obligations under PWA and other agreements or documents made or issued with bond issuance.
  10. Because an authorized party on the basis of applicable legal provisions has seized or seized in any way whatsoever for all or part of the company’s assets, it cannot carry out all its business or part of its essential business.

It must be admitted that default has become a very frightening specter in the Capital Market. This concern is triggered by the presence of Issuers who do not have a sure and clear guarantee. However, bonds in reality still remain thirsters for collecting funds. This is due to several advantages in issuing bonds, which are lower interest rates than bank lending, with the number of bonds that can be adjusted to the needs of the company, so many companies are competing to issue bonds. With the high demand for corporate bonds, there is investor confidence in the ability of national corporations, but this trust must be balanced and accompanied by an attitude of caution, because trust without being accompanied by an attitude of caution will eventually reap a disaster in repayment of principal and interest by the Issuer. In this case, the OJK as the official supervisor in the Capital Market industry should provide strict sanctions, so that it is hoped that these failed cases will not recur. Including, the OJK also requires information disclosure to bondholders in all matters related to the performance of the company and all things that have the potential to disrupt the payment of principal or interest on bonds. Without strict handling and enforcement, the default has the potential to come back. For this reason, a regulation (special law) is needed regarding corporate bonds, because if it holds to the Capital Market Law and the Bapepam-LK Regulation on Bond Public Offering can be said to be less able to accommodate the needs of bondholders, especially in the case of default. For this reason, the bondholders must be precise and careful in sorting and also choosing bonds by always criticizing the securities rating given to the issuer, the Bondholders can make a lawsuit if the Issuer is deemed not to keep the promises given at the time of bond issuance. That way, the corporate bond market in the Indonesian Capital Market is expected to be more advanced and developing. (***)