Indonesian real estate first

You know the markets are getting back to normal when we can write about Indonesian property securitizations.

One of Indonesia's leading property companies signed an innovative commercial real estate mortgage deal on Friday, ushering in an era of near-securitization deals in Indonesia. The $26 million loan was arranged, structured and sold by Lehman Brothers for PT Jakarta Setiabudi Internasional (JSI), a property company with commercial, residential and hotel assets in Jakarta and Bali. It was founded by the Darmadi family and listed on the Jakarta Stock Exchange in January 1998.

The deal sees JSI pool the cashflows of nine separate properties and then waterfall the rents down through the loan structure. The deal is not a pure securitization as there is no true sale and no special purpose vehicle. Investors get 9.5% coupon and a three-year maturity with a 25-year amortization structure. The investors include Lehman Brothers, Nomura, BNP, Bank Panin, Bank Central Asia and Bank Ekonomi. Private individuals also took part in the deal. Standard Chartered is the facility/security agent.

The deal is rated A rating by Fitch affiliated Kasnic Credit Rating Indonesia, two notches higher than the company's corporate rating of BBB+. The basis of this outrating lies in the strong security measures built into the transaction. On top of the usual assignment of rents and mortgage security that traditional CMBS deals have, the founding family has also pledged 51% of the company's shares (held in an investment company called PT Multi Investama) to further support the transaction. Moreover, at $26 million the loan is only 32% of the value of the collateral, which is worth $92 million. The company as a whole has a net asset value of $300 million and debt of $50 million, giving it lots of room for additional leverage.

Sold at par to yield 9.5%, the pricing of the deal is slightly higher that other dollar denominated Indonesian credits such as Bank Mandiri and PT Medco Energi. According to Blake Olafson, of Lehman's real estate and structured finance group, if the deal had been done on a pure real estate lending basis, the pricing would have been over 10%. This structure saved the issuer up to 100bps. "Although this is structured as a loan, by the usual assignment of rights, it is fully tradable," says Olafson. "I expect the yield to move down to around 8.5% in the next few months."

The deal raised more than cash for the company. JSI harbours ambitions to become a regional property company. According to senior management, 51% of the rationale of this deal was to raise money to pay down existing facilities, but the remaining 49% of the reasoning was marketing JSI's name to an international audience. "Our company has not done any international borrowing for the last five years," says Amir Abdul Rachman, Vice President Commissioner of JSI in Jakarta. "But now we believe we must go international and expose ourselves to international methods of financing. We want to let people outside of Jakarta know that we are here and ready for business."

The deal is a surprise winner of the race to see what could be the first international securitization out of Indonesia since the crisis. Credit card deals for BII and BNI as well as ABS transactions for Pertamina were thought to be likely winners. But this deal, although not exactly a securitization, certainly makes use of many of the most apposite aspects of the product.

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