More property firms may seek offshore financing

JAKARTA (JP): More property developers will likely seek offshore loans to finance their projects as a result of the increasing local interest rates and the government's call for limited credit expansion for the property sector.

Property analysts said local banks are now reluctant to extend more credit to the property sector because they have sunk a lot of money into the sector over the last few years, and the issuing of rights shares by publicly-listed property firms is still difficult at the moment.

One alternative for finding financing sources open for property developers is seeking offshore loans or issuing bonds denominated in the U.S. dollar, Lenny Leiman, a property analyst at the security firm PT Sigma Batara said here over the weekend.

"However, only reputable developers can tap foreign funds," Lenny said, adding that publicly-listed property companies would have more standing if they wanted to raise offshore funds.

Currently 19 property companies are listed on the Jakarta Stock Exchange. They are PT Ciputra Development, PT Dharmala Intiland, PT Duta Anggada, PT Duta Pertiwi, PT JIH & Development, PT Jaya Real Property, PT Jababeka, PT Lippo Land Development, PT Metro Supermarket, PT Modernland Realty, PT Mulia Land, PT Ometraco Realty, PT Pakuwon Jati, PT Panca Wiratawa Sakti, PT Plaza Indonesia, PT Pudjiadi & Sons, PT Pudjiadi Prestige, PT Putra Surya Perkasa and PT Summarecon Agung.

Early last week, PT Ciputra Development, through its subsidiary, Amsterdam-based Ciputra Development International B.V., raised US$100 million by issuing floating rate notes to a number of foreign banks with Keppel Bank of Singapore Ltd. as lead coordinator.

Cheaper

Harun Hajadi, a director at Ciputra Development, said raising foreign funds is much cheaper right now as local lending interest rates have kept increasing to over 20 percent.

Ciputra Development's notes, which will mature in the year 2000, carry an interest rate of 2.3 percent above the London Inter-Bank Offered Rates.

Harun acknowledged that some segments of the property sector, especially apartments and office buildings, had turned out to be unfavorable for business. "That's the main reason why getting loans from local banks for property development is getting more difficult right now."

Ian David, an analyst at the property consultant firm PT Procon Indah, predicted an oversupply of apartments and office buildings beginning next year.

"However, the impact of the oversupply might not be serious because the demand, especially for office space, has been consistently growing, thanks to the high level of approvals of foreign investments," David said.

Foreign investment approvals increased almost three times last year to $23.7 billion from $8.14 billion in 1993. During the first five months of this year, the government approved 322 foreign investment projects worth at $17.36 billion.

David said the property sector actually still offers a good opportunity for business. "I know a lot of bankers who are interested in property projects."

He acknowledged, however, that the government's call to limit the bank credit disbursed to the property sector had considerably influenced the property market.

"But I don't believe that by such a call, the government is trying to influence the market. I think, it's just a very prudent policy to get the banking sector more balanced in lending," David said.

With such a policy, he added, banks are expected to extend more credit to export-oriented firms, as well as to small-scale and medium-sized enterprises. "And of course it's good for the country's economy."

He suggested that banks which want to extend loans to the property sector focus their interest on specific types of property and take into consideration the locations of the projects and the prospects of demand. (rid)