SMF to issue bonds for mortgages, worth Rp 400b in April and Oct.

State owned secondary mortgage facility provider PT Sarana Multigriya Finansial (SMF) plans to issue two types of bonds this year, worth Rp 400 billion, to raise funds for housing loans. SMF president director Erica Soeroto said half the bonds would be issued in April (worth Rp 200 billion), and the remaining half in October. The funds raised will be used to support the financing of mortgage issuers, Erica told reporters Sunday in Bogor.

Erica said the bonds to be issued April would have a five year maturity and a fixed rate, with PT Bahana Securites and PT Trimegah Securities underwriting the release. SMF supports the national housing objectives by providing loans to financial institutions (mostly banks) and purchasing mortgages. By purchasing mortgages, SMF aims to improve financial firms’ capital adequacy ratio since collateralized assets would have changed hands and firms would gain greater capacity to handle more mortgages.

According to a report issued last year by the Asian Development Bank (the government partner developing SMF), only around 20 percent of housing in Indonesia was built using formal financing, despite high liquidity in the banking system due to the perceived high risk in lending. At the start of operations in 2005, the government had set aside Rp 1 trillion for the company. Rp 600 billion would be used for operations and the remaining Rp 400 billion would be stored in the State Savings Bank.

SMF operational director Paulus Nurwandono said the type of mortgages to be purchased by the company must be worth less than Rp 150 million and have a maximum tenor of 15 years. Without giving details, Paulus said the interest on SMF mortgage loans would be higher than the average rate. However, he said, banks would benefit from them, as mortgages with 15 years of tenor could be fully repaid within five years.