RI's 1st mortage linked products launched

The Jakarta Post, JAKARTA | Wed, 02/04/2009 3:51 PM  

State lender Bank Tabungan Negara (BTN) and state secondary mortgage facility provider PT Sarana Multigriya Financial (SMF) launched Indonesia's first ever residential mortgage-backed securities on Tuesday. 

The securities, named Collective Investment Contract Asset Backed Securities (KIK EBA), are a fixed income security with quarterly amortized principal payments and a coupon rate of 13 percent as well as an average maturity period of 2.6 years. 

The offering period will last until Feb. 11 with a total value of Rp 100 billion (US$8.6 million) in the first phase, sold at Rp 5 million per unit. 

It will be traded electronically in the Indonesia Stock Exchange (IDX), under the code DSMF-I KPR BTN Class-A EBA on Feb. 12. 

BTN president director Iqbal Latanro said the securities could be used as an alternative funding instrument to solve maturity mismatch problems , which had been an ongoing issue. 

"All this time, BTN must fund long-term mortgages, which are usually 10 or 15 years, using mid-term financing under seven years duration. 

"This cause maturity mismatch. KIK EBA provides us an alternative solution for fundings," Iqbal said. 

"With KIK EBA, we also hope to gradually reduce *cost of fund', so we can have more competitive interest rates." 

BTN selected its own 5,060 residential mortgage accounts to be used as the underlying guarantee for the securities. 

The accounts must meet 32 criteria in order to ensure maximum protection for investors. 

"Some of the criteria include adequacy of legal documents, a minimum mortgage lapse of 18 months, no deliquencies for more than 30 days, and every loan must be covered by fire and life insurance," SMF president director Erica Soeroto said. 

"This is the main difference with the United States' sub-prime mortgage securities. 

"We have learnt from their mistakes and must not fall into the same trap," she added. 

Moody's, a holding company of Moody's Investors Service which ranks credit-worthiness of borrowers using a standardized ratings scale, also use the criteria to give their ratings on the securities. 

The company rated KIK EBA with a "Aaa" (Triple-A) rating which means it is of the highest quality and comes with the smallest degree of risk. 

The Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) appointed PT Danareksa Investment Management as the instrument manager and Bank Rakyat Indonesia (BRI) will be a custodian bank for the securities starting on Jan. 29. 

"Despite the low risk and the high quality of the securities based on Moody's ratings, investors will still need to have an adequate understanding before investing in this kind of investment," Danareksa president director Priyo Santoso said. (hdt)