BPS to launch mortgage-backed securities
BPS to launch mortgage-backed securities
JAKARTA (JP): Publicly listed Bank Papan Sejahtera (BPS) plans
to launch Indonesia's first ever mortgage-backed securities of
about US$100 million through the Jakarta Stock Exchange.
Bank Papan president Al Njoo said here yesterday that issuing
mortgage-backed securities would help minimize financial risks in
the property sector.
"This way, we will get longer-term capital to finance property
projects," Al Njoo said after the signing of a memorandum of
understanding with the Mortgage Bankers Association of America on
a certified mortgage banker training program here.
Al Njoo said the issuance was timely as most finance available
here now was short-term.
And it is very risky to finance property projects -- which are
long-term investments -- with short-term funds.
He said the planned mortgage-backed securities would mature in
five years and carry an annual interest rate of some 15 percent
to 16 percent.
"We offer 15 to 16 percent because they have to compete with
bonds in the market," Al Njoo said.
Unlike bonds which are backed by the 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.
Most mortgage-backed securities consist of multiclass
obligations divided into different classes of bonds, with
different maturity dates, to appeal to different investor needs.
Issuing mortgage-backed securities on Indonesia's stock
markets could create problems with regulations, especially on the
secondary mortgage market (SMM).
But the Capital Markets Supervisory Agency chairman, I Gede
Putu Ary Suta, promised yesterday that his agency would soon
issue a ruling on mortgage-backed securities transactions.
Indonesia already has a 1996 Mortgage Law to govern the use of
land as security for finance. But the government has not yet
issued supporting regulations on the mortgage law.
And the government has long planned to establish a secondary
mortgage facility (SMF), a auctioning of property assets to
investors.
Under the plan, developers will sell their properties to the
would-be SMF, which will in turn issue and sell bonds to
investors through the capital market.
In developed countries like the United States, SMF is the
first stage toward the development of an SMM.
If Bank Papan proceeds with its plan it would directly enter
the SMM stage.
SMM's buy and sell bonds issued by financial institutions
which use the proceeds to provide property credit. It is
autonomous and bigger in scope than SMF.
Al Njoo said creating an SMM would increase transparency in
property financing, as any issuance of mortgage-backed securities
would be rated by an independent rating agency.
"Because mortgage-backed securities are very low risk, we hope
it will get a triple A or at least double A rating," Al Njoo
said. Triple A is the highest rating.
Al Njoo said he was sure investors would welcome the new
securities as demand for houses would remain strong in years to
come.
Real Estate Indonesia, an association of Indonesian
developers, has said that Indonesia needs one million houses a
year. If the houses are an average of Rp 10 million each,
Indonesia needs Rp 1 trillion a year. (rid)