BPS postpones $100 million mortgage-backed securities

JAKARTA (JP): Publicly listed Bank Papan Sejahtera (BPS) has postponed launching its US$100 million mortgage-backed securities due to continued uncertainty over the country's monetary situation.

Bank Papan president Al Nyoo said Saturday the launching of was initially scheduled this month through the Jakarta Stock Exchange.

But the bank decided to postpone it because the current monetary upheaval could discourage investors from buying securities, he said.

"We shall wait until the situation is back to normal," he added.

Al Nyoo earlier said that issuing mortgage-backed securities would help the bank to minimize financial risks in the property sector as it would get longer term capital to finance property projects.

It was very risky to finance property projects -- which are long term investment -- with short term funds, he said.

He said the planned mortgage-backed securities, destined to be the first issuance of the debt instruments by Indonesian companies in the domestic market, would mature in five years and carry an annual interest rate of some 15 percent to 16 percent. Danareksa and Deutsche Morgan Grenfell, a subsidiary of the Deutsche Bank, would be underwriters.

"We offer 15 to 16 percent because they have to compete with bonds in the market," he said.

Unlike bonds which are backed by an issuing company, mortgage- backed securities are backed by property assets or trust deeds. Principal and interest payments on the underlying mortgages are used to pay the interest and principal on the securities.

Regulations are still incomplete on issuing mortgage-backed securities on Indonesia's stock market, especially on the secondary mortgage market.

The 1996 Mortgage Law governs the use of land as security for finance, but the government has yet to issue a supporting regulation on the law.

The government is reportedly drafting the ruling to regulate mortgage-backed securities transactions. (jsk)