Transcript
29th November 2001
Securitisation Summit
A Case Studyby
Simon Stockley
Presentation Summary…
Overview : SAHL•What is SAHL?•Activities since launch
Securitisation•Defined •Global growth•Structure•Strategic advantages
Case Study•Product•Positioning•Funding•Way forward
“Banking establishments are more dangerous than standing armies”
Thomas Jefferson
“Except for con-men borrowing money they shouldn’t get, and widows who have to visit with handsome men in the trust department, no sane person ever enjoyed visiting a bank”
Martin Mayer
What is SA Home Loans?The first South African company to discount home loans on a national basis.
The first South African company to fund its loan book through the internationally recognised practice of “securitisation.”
The first South African company to operate with a transparent pricing policy with regard to home loans.
What is SA Home Loans?
It is a management organisation that links institutional investors with borrowers.
The company is owned by Peregrine Holdings Limited, Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank), International Bank of SA (co-owned by Banque Nationale de Paris & Dresdner Bank), and Management.
SA Home Loan Shareholders
Number of loans processed : 15 000
Value of loans processed : R 5 billion
Value of loans approved : R 2 billion
Breakdown by region : Gauteng 30%
KZN 35%
W Cape 35%
South African Home LoansActivities since launch: February 1999
(As at 01 November 2001)
Definition…
Securitisation Defined
“The packing of individual loans and other debt instruments, converting the package into a security, enhancing its credit for the further sale to a third party.”
Kendall
Securitisation Defined
The conversion of illiquid individual loans to marketable securities, which are generally asset backed.
The effect then is …….
Securitisation Defined
In practical terms …
Securitisation pulls apart financial transactions and allocates the risk and rewards to those entities that are best able to accept and therefore price for them.
Securitisation DefinedBut what does securitisation actually do …….
Gets more money into the economy to lend.
Gets more money into the country to lend.
Allows for cheaper funding so consumers benefit.
Allows for diversified funding options and pricing
for risk so investors benefit.
Securitisation DefinedContinued …...
Bypasses the traditional intermediaries and links borrowers directly to money and capital markets.
Disintermediates the entire financial market and encourages competitive forces.
Securitisation Some Facts
Securitisation is America’s most reliable source of low cost finance.
In the USA, half of all home loans are presently funded
through securitisation and one fifth of motor and credit
card receivables.
In 1998 half of Chryslers corporate debt was funded
through securitisation.
The pace of growth in structured products continues to attract substantial global investor interest
Total Issuance Average annual growth of 32%
Securitisation Market Size
Western Europe$31 billion
Latin America$1 billion
Asia$9 billion
Non-US Asset Backed$41 billion in 1997
EXPORTRECEIVABLES
STUDENTLOANS
DELINQUENTTAXES
ENTERTAINMENTRECEIVABLES
HEALTH CARERECEIVABLES
SUB-PRIMEAUTO LOANS
SOCIAL HOUSINGLOANS
EMBEDDEDVALUE
UTILITYRECEIVABLES
LOTTERYRECEIVABLES
ROADTOLLS
BOATLOANS
EQUIPMENTLEASES
INSURANCEPREMIA
RV’s
HOME EQUITYLOANS
TRADERECEIVABLES
AUTOLOANS
SMALL BUSINESSLOANS
CREDITCARDS
COLLATERAL MORTGAGE
OBLIGATIONS
COMMERCIALMORTGAGES
RESIDENTIALMORTGAGES
1970’sEarly
1980’sMid
1980’sLate
1980’sEarly
1990’sMid
1990’s
USA UKCanada
FRANCE SPAINNETHERLANDSVENEZUELAMEXICO
GERMANY, ITALY, TURKEY, ARGENTINA, BRAZIL,INDONESIA, MALAYSIA,THAILAND, SOUTH KOREA,PHILLIPINES, CHINA ETC.
Geographic Expansion & Product Innovation Securitisation
Domestic Securitisation dates from 1989…
This year has seen a breakthrough in South Africa
R250 million (United Building Society, pt of ABSA Group). Bank mortgages.
19891989
R85 million (Sasfin Ltd): Corporate lease rentals.19921992
National Housing Finance Corporation (announced). Non-bank mortgage for lower & middle income groups.
19971997
Kiwane. R450 million in AA-rated collateralised debt obligation.
20002000
SA Home Loans. Non-bank residential mortgage securitisation. (R1.25 Billion)
20012001
Structural Impediments
Banks - cash rich.
Big is best.
Rating agencies.
Exposure to international markets.
Historically little incentive for banks to securitise.
Origination Impediments
Need to originate.
Time to originate.
Registration process. Costs of transferring assets.
Cost associated with origination.
Information Technology Impediments
Lack of silver bullet applications.
Costs.
Integration.
SA Home LoansA case study
The product.
Its positioning.
Funding.
The Product
20 year, variable rate, reducing term mortgage.
No prepayment or redemption penalties.
Discounted legal and administrative fees.
No ongoing administrative charges.
Re-advance facility twelve times a year.
Fixed margin above cost of money.
Positioning
How much will I save monthly?Get a discount on your home loan – for life
Monthly Savings
R300 000 R200 000 R100 000
1.00% R235 R158 R79
1.50% R254 R236 R118
2.00% R471 R314 R157
2.50% R587 R391 R196
3.00% R703 R464 R234
ReservingRequirements
BankDepositsLoans
ToPublic
Margin : 4 - 5%
Traditional Bank Funding
Control
Public
SpecialPurposeVehicleTrust
LoansTo thePublic
SeniorSecurities
SubordinatedSecurities
PurchaseSecurities
IndependentTrustee
ExternalAuditor
Origination & ManagementFee : 0.5%
JIBAR Rate
Plus 2.1%
1.6% Yield pick up
Securitisation Structure
InstitutionalInvestors
Public
Public
Public
Public
Public
SPV
SPV
SPV
Senior MBS
Junior MBS
Senior MBS
Junior MBS
Senior MBS
Junior MBS
Short Term
Insurer
Life Insurer SAHL
Interim Funder
External Directors
AuditorsMARKET MAKER
INVESTORS
INVESTORS
SECURITIES AND AGREEMENTSTHE PUBLIC SA HOME LOANS SPECIAL PURPOSE
VEHICLESMORTGAGE
BACKED SECURITIES
INSTITUTIONAL INVESTORS
Proposed SAHL Legal Structure
Public
Loans
JIBAR + 2.1%
MBT 1
Special
Purpose
Vehicle
R1 Billion
A Class
92 %
AAA Rating
JIBAR + 20/100 Points
B Class
8 %
BBB Rating
JIBAR + 200/300 Points
C Class
2.5 %
Unrated
Pay away1.6% to investors
SAHL
0.5% Management Fee
Standard Bank
Deloitte & Touche
Standby Administrator
Investment Structure
General Observations
True sale to remove from balance sheet and to make insolvency remote.
Quality of asset pool.
Role of rating agencies.
Investor support.
Will Investors buy?
Yield enhancement.
Rating.
Liquidity.
Portfolio diversification.
Privatisation/shortage of quality script.
The Strategic Advantages
Diversify funding base – access to new sources
of funding – less reliance on bank lending.
Lower cost of funding to originator and consumer.
Allows unrated / poorly rated originators to access capital markets.
Off balance sheet treatment/Capital relief.
The Strategic Advantages
Optimises the use of scarce capital resources.
Transcend the sovereign risk ceiling.
Allows pricing for risk.
Continued ...
Securitisation is increasingly being used as a tool to achieve the issuer’s broader objectives
Maximise Capital Efficiency
Improving Return on Equity & managing regulatory capital efficiently is a growing concern among financial institutions & publicly held corporations.
Asset/Liability Management
Match-fund term sheets through issuance of variety of currencies & bases.
Reduce Leverage of Balance Sheet
With the proceeds of the sale of the assets, some originators may choose to pay off their outstanding debt.
Credit management
By selling assets, some institutions are
able to reduce their exposure to certain
industries &/or names
Alternative &/or cheaper finance
In some cases, ABS issuers achive ratings above their unsecured or country ratings. Issuers can also benefit from investor diversification
Grow assets under management
Using CBOs, fund managers can increase
funds under management without inflating the balance
sheet
Capital Relief
Securitized assets are sold into a vehicle for off balance-sheet treatment, thereby releasing capital held against them
Why the Securitisation Model?
Ability to access capital markets directly.
“Unbank lending”.
Pricing for risk.
Funding diversification.
The Way Forward
Increased activity MBS market – placements.
Investor education.
Cross border applications – ability to bridge sovereign risk ceilings.
Growth secondary market – listing bond exchange.
Expansion to other asset classes.
Greater product diversification.
Thank you.Simon Stockley
CEO - SA Homeloans (Pty ) Ltd
Phone : (031) 560 5392
Fax : (031) 562 4266
Cell no : 083 276 0068
e-mail : simons @sahomeloans.com
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