Presentation to The Gordon Institute of Business Science Creating and Developing The New Organisation Simon Stockley 11 March 2005.

Presentation to

The Gordon Institute of Business Science

Creating and Developing The New Organisation

Simon Stockley11 March 2005

South African Mortgage Market Overview

Sophisticated mature – R300billionDichotomous Dominated by Big 4 BanksSound legal structure – title & foreclosureWide margins – no real competitionNo non bank lendingBanks “cash rich” – no shortage of capitalCredit data good

0

50

100

150

200

250

300

May

-93

Aug

-94

Aug

-95

Aug

-96

Aug

-97

Aug

-98

Aug

-99

Aug

-00

Aug

-01

Aug

-02

Jul-0

3

Nedcor25%

ABSA30%

SBSA20%

Investec4 %

SAHL3 %Other

2 %

First Rand Bank 16%

The SA Mortgage Market

The rate of growth of the SA Home Loans book has been exponential

On a monthly basis SA Home Loans now originates up to R1billion in new mortgages

This represents approximately 15% of monthly originations

SAHL REGISTRATIONS

R0m

R200m

R400m

R600m

R800m

R1,000m

R1,200m

SAHL

BB

Total

What is SA Home Loans?

The first South African company to discount home loans on a national basisThe first South African company to fund its loan book through the internationally recognised practice of “securitisationThe first South African company to operate with a transparent pricing policy with regards to home loans

What is SA Home Loans?

It is a management organisation that links institutional investors with borrowersThe company is owned by Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank) and Management

SA Home LoansActivities since launch: February 1999

: R20billion

: R1.1billion (December 2002)

Number of clients : 75 000

Monthly increase in clients : 3 000

Value of loans approved

Securitised PortfolioThekwini Fund I : R1.25billion (December 2001)Thekwini Fund 2

Thekwini Fund 5 : RR3billion (February 2005)

Thekwini Fund 3 : R2billion (December 2003)Thekwini Fund 4 : R2.5billion (July 2004))

Single Seller Conduit Programme

: R15billion (launch July 2005)

Why No Securitisation prior to December

2001?

Big is bestRating agenciesExposure to international marketsLegal framework not securitisation friendlyLittle incentive for banks to securitiseNo ability to reinsure first loss position

S A Home Loans

The productIts positioningFunding

20 year, variable rate, reducing term mortgageNo prepayment or redemption penaltiesDiscounted legal and administrative switch feesNo ongoing administrative chargesRe-advance facility/access bondFixed margin above cost of moneySwitch re-finance proposition

The Product

ReservingRequirements

BankDepositsLoans

ToPublic

Margin : 4 - 5%

Traditional Bank Funding

• Mismatch

• Dead Capital

• Contamination

Control

Public

SpecialPurposeVehicleTrust

LoansTo thePublic

SeniorSecurities

SubordinatedSecurities

PurchaseSecurities

Independent Trustee

ExternalAuditor

Origination & ManagementFee : 0.5%

J IBAR Rate

Plus 2.1%

1.6% Yield pick up

SA Home Loans Securitisation Structure

InstitutionalInvestors

Public

Loans

J IBAR + 2.1%

Thekweni I

Special

Purpose

Vehicle

R1.25 Billion

A Class

92 %

AAA Rating

J IBAR + 70 Points

B Class

8 %

BBB Rating

J IBAR + 230 Points

C Class

2.5 %

Unrated

Pay away1.6% to investors

SAHL

0.5% Management Fee

Standard Bank

Deloitte & Touche

Standby Administrator

Investment Structure

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 VEHICLES

MORTGAGE BACKED SECURITIES

INSTITUTIONAL INVESTORS

SAHL Legal Structure

Thekwini 4 Summary

Size of Issue : R2,500,000,000

Originator and Servicer : SA Home Loans (Pty) Ltd

Standby Servicer : Standard Bank of SA (Home Loan Division)

Arranger & Bookrunner : Standard Bank of SA (Corporate & Investment

Banking)

Substitution Period : 2.5 years

Final Legal Maturity : 21 Nov 2029

Call Date : 21 Nov 2009

Listing : BESA

Class A1

R 1,585 m

JIBAR + 0.39 %

Class B – R 115 m

JIBAR + 1.00 %

Additional Capital [0.5]%

Class A2 - R 643 m

JIBAR + 0.39 %

Class A3 – R 107 m

10.34% %

Class C – R 50 m

JIBAR + 2.10 %

Tranching

Capital [0.6]%

BBB

Rating

AAA

A

Not rated

WAL

5 yrs

5 yrs

4.18 to 5 yrs

In brief

Growth in SA Securitisation Market

0

2

4

6

8

10

12

14

16

18

Pre-2000

2000 2001 2002 2003 2004

R b

illi

on

2000 2001 2002 2003Kiwane (CDO) - R 450 m Thekwini 1 (RMBS) - R 1 350 m FRESCO (CLO) - R 900 m Cars 1 (Auto) - R 3 000 m

On the Cards (In-store) - R 2 000 m BMW 1 (Auto) - R 1 000 mPROCUL (Auto) - R 1 300 m BMW 2 (Auto) - R 1 000 mPrivate Mortgages (RMBS) - R 1 000 m Private Mortgages - R 1 000 mFintech Receivables (Equipment Lease) - R 700 m Thekwini 3 - R 2 000 mThekwini 2 (RMBS) - R 1 000 m InDWA (Conduit) - R 3 000Blue Titanium (Conduit) - R 500 m Grayson 1 (Conduit)ABCUS (Conduit) - R 250 m Blue Titanium (Conduit) - R 1 500 m

ABCUS (Conduit) - R 1 500 m

Public Issuance Deal List

• SA Home Loans launched the securitisation market in 2001

• Since then issuance volumes have grow to R 14 billion in 2003

Source: Standard Bank

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

T1 T2 T3 T4

Investor support to date…

Securitisation – Cost of Funds History

0.000%0.100%0.200%0.300%0.400%0.500%0.600%0.700%0.800%0.900%

Thekwini 1 Thekwini 2 Thekwini 3 Thekwini 4

Thekwini

Blended Cost of Funds

What We Got Right!

Got to profitability!TimingCopied unashamedly!Had a documented business plan … and stuck to itKept it simpleSuccessful launch … the power of PR!Advertised … built a brand and a culture consistent with that propositionEstablished and owned the “category”

continued …

What We Got Right! (continued …)

Adopted and maintained a consistent “position” … anti bank … consumers’ champion Focus … single product offering until profitabilityInvested in systems and technologyPaid well … incentivised greatly … not just financially!Chose our location well (accidentally?)Planned the Exit/Succession!Finally … had fun!

What We Got Wrong!

Undersold ourselves … entrepreneurs are a scarce resource!Did not retain sufficient equity for a subsequent dilutionDid not focus on team dynamicsUnder-estimated the distraction of intra-shareholder relationsShould have divisionalisedBuilt a second tier representative management team … soonerTiming!

Thank You

Simon Stockley

+27 83 2760068e-mail : [email protected]