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)